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Was The Smart Money Right About HubSpot Inc (HUBS)?

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  • HUBS

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about HubSpot Inc (NYSE:HUBS) in this article.

Is HubSpot Inc (NYSE:HUBS) going to take off soon? Investors who are in the know were in an optimistic mood. The number of bullish hedge fund bets inched up by 8 recently. HubSpot Inc (NYSE:HUBS) was in 54 hedge funds' portfolios at the end of June. The all time high for this statistic was previously 52. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HUBS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 46 hedge funds in our database with HUBS holdings at the end of March.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining 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. With all of this in mind let's analyze the recent hedge fund action encompassing HubSpot Inc (NYSE:HUBS).

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

Heading into the third quarter of 2021, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. On the other hand, there were a total of 41 hedge funds with a bullish position in HUBS a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HUBS A Good Stock To Buy?
Is HUBS A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Christopher Lyle's SCGE Management has the biggest position in HubSpot Inc (NYSE:HUBS), worth close to $820.5 million, corresponding to 7.7% of its total 13F portfolio. On SCGE Management's heels is Whale Rock Capital Management, led by Alex Sacerdote, holding a $357.3 million position; the fund has 2.3% of its 13F portfolio invested in the stock. Other peers that are bullish encompass Ken Griffin's Citadel Investment Group, Brian Ashford-Russell and Tim Woolley's Polar Capital and Michael Kahan and Jeremy Kahan's North Peak Capital. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to HubSpot Inc (NYSE:HUBS), around 25.46% of its 13F portfolio. Greenlea Lane Capital is also relatively very bullish on the stock, designating 10.15 percent of its 13F equity portfolio to HUBS.

As aggregate interest increased, key hedge funds have been driving this bullishness. Whale Rock Capital Management, managed by Alex Sacerdote, created the largest position in HubSpot Inc (NYSE:HUBS). Whale Rock Capital Management had $357.3 million invested in the company at the end of the quarter. Michael Kahan and Jeremy Kahan's North Peak Capital also made a $131.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Gabriel Plotkin's Melvin Capital Management, Glen Kacher's Light Street Capital, and Panayotis Takis Sparaggis's Alkeon Capital Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as HubSpot Inc (NYSE:HUBS) but similarly valued. We will take a look at Coca-Cola European Partners plc (NYSE:CCEP), Deutsche Bank AG (NYSE:DB), Laboratory Corp. of America Holdings (NYSE:LH), Hess Corporation (NYSE:HES), Tyson Foods, Inc. (NYSE:TSN), Fifth Third Bancorp (NASDAQ:FITB), and Alexandria Real Estate Equities Inc (NYSE:ARE). This group of stocks' market caps resemble HUBS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCEP,31,1300875,6 DB,20,1860258,4 LH,53,2555270,-1 HES,31,615716,5 TSN,33,743751,5 FITB,41,360346,3 ARE,28,583759,1 Average,33.9,1145711,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $1146 million. That figure was $2675 million in HUBS's case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Deutsche Bank AG (NYSE:DB) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks HubSpot Inc (NYSE:HUBS) is more popular among hedge funds. Our overall hedge fund sentiment score for HUBS is 90. 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 returned 29.6% in 2021 through November 5th but still managed to beat the market by 3.1 percentage points. Hedge funds were also right about betting on HUBS as the stock returned 37.7% since the end of June (through 11/5) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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