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New Relic Inc (NEWR): Hedge Funds Are Coming Back

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Is New Relic Inc (NYSE:NEWR) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

New Relic Inc (NYSE:NEWR) shareholders have witnessed an increase in support from the world's most elite money managers lately. New Relic Inc (NYSE:NEWR) was in 29 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 44. Our calculations also showed that NEWR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

If you'd ask most traders, hedge funds are perceived as worthless, outdated financial tools of the past. While there are more than 8000 funds trading today, Our experts hone in on the elite of this group, around 850 funds. It is estimated that this group of investors preside over most of the smart money's total capital, and by observing their best picks, Insider Monkey has come up with a number of investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Glenn Welling Engaged Capital
Glenn Welling Engaged Capital

Glenn Welling of Engaged Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to take a glance at the latest hedge fund action surrounding New Relic Inc (NYSE:NEWR).

Do Hedge Funds Think NEWR Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 35 hedge funds with a bullish position in NEWR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, HMI Capital was the largest shareholder of New Relic Inc (NYSE:NEWR), with a stake worth $352.2 million reported as of the end of June. Trailing HMI Capital was Matrix Capital Management, which amassed a stake valued at $334.9 million. Eminence Capital, Engaged Capital, and Archon Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position HMI Capital allocated the biggest weight to New Relic Inc (NYSE:NEWR), around 11.03% of its 13F portfolio. North Run Capital is also relatively very bullish on the stock, earmarking 7.65 percent of its 13F equity portfolio to NEWR.

As aggregate interest increased, some big names were breaking ground themselves. Engaged Capital, managed by Glenn W. Welling, assembled the most outsized position in New Relic Inc (NYSE:NEWR). Engaged Capital had $78.8 million invested in the company at the end of the quarter. Mark Coe's Intrinsic Edge Capital also initiated a $11.1 million position during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Ricky Sandler's Eminence Capital, and Qing Li's Sciencast Management.

Let's now take a look at hedge fund activity in other stocks similar to New Relic Inc (NYSE:NEWR). These stocks are frontdoor, inc. (NASDAQ:FTDR), Lions Gate Entertainment Corporation (NYSE:LGF-B), H&R Block, Inc. (NYSE:HRB), Adient plc (NYSE:ADNT), Balchem Corporation (NASDAQ:BCPC), JFrog Ltd. (NASDAQ:FROG), and Radian Group Inc (NYSE:RDN). This group of stocks' market valuations resemble NEWR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FTDR,33,686925,-3 LGF-B,22,518626,-5 HRB,30,229563,3 ADNT,35,662444,-4 BCPC,15,50095,1 FROG,12,251080,-8 RDN,30,358639,0 Average,25.3,393910,-2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $394 million. That figure was $1282 million in NEWR's case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand JFrog Ltd. (NASDAQ:FROG) is the least popular one with only 12 bullish hedge fund positions. New Relic Inc (NYSE:NEWR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NEWR is 63.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on NEWR as the stock returned 12.1% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.