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Was The Smart Money Right About Piling Into Axon Enterprise, Inc. (AAXN)?

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 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 Axon Enterprise, Inc. (NASDAQ:AAXN) in this article.

Axon Enterprise, Inc. (NASDAQ:AAXN) was in 39 hedge funds' portfolios at the end of June. The all time high for this statistics is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. AAXN shareholders have witnessed an increase in activity from the world's largest hedge funds of late. There were 26 hedge funds in our database with AAXN positions at the end of the first quarter. Our calculations also showed that AAXN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most traders, hedge funds are viewed as unimportant, outdated financial vehicles of yesteryear. While there are over 8000 funds with their doors open today, Our researchers choose to focus on the bigwigs of this group, around 850 funds. These investment experts preside over the majority of the smart money's total capital, and by observing their inimitable picks, Insider Monkey has unsheathed a few investment strategies that have historically beaten the broader indices. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Mark Kingdon - Kingdon Capital
Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon 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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind let's take a glance at the key hedge fund action encompassing Axon Enterprise, Inc. (NASDAQ:AAXN).

Hedge fund activity in Axon Enterprise, Inc. (NASDAQ:AAXN)

At Q2's end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AAXN over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Abdiel Capital Advisors was the largest shareholder of Axon Enterprise, Inc. (NASDAQ:AAXN), with a stake worth $214.4 million reported as of the end of June. Trailing Abdiel Capital Advisors was Broadwood Capital, which amassed a stake valued at $74.6 million. Polar Capital, Composite Capital, and Melqart Asset 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 Abdiel Capital Advisors allocated the biggest weight to Axon Enterprise, Inc. (NASDAQ:AAXN), around 6.33% of its 13F portfolio. Broadwood Capital is also relatively very bullish on the stock, designating 5.83 percent of its 13F equity portfolio to AAXN.

As industrywide interest jumped, key money managers were leading the bulls' herd. Composite Capital, managed by David Ma, assembled the biggest position in Axon Enterprise, Inc. (NASDAQ:AAXN). Composite Capital had $54.1 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $9.9 million investment in the stock during the quarter. The following funds were also among the new AAXN investors: Mark Kingdon's Kingdon Capital, Principal Global Investors's Columbus Circle Investors, and Michael Gelband's ExodusPoint Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Axon Enterprise, Inc. (NASDAQ:AAXN) but similarly valued. These stocks are Farfetch Limited (NYSE:FTCH), Donaldson Company, Inc. (NYSE:DCI), Sensata Technologies Holding plc (NYSE:ST), Santander Consumer USA Holdings Inc (NYSE:SC), Bunge Limited (NYSE:BG), Aluminum Corp. of China Limited (NYSE:ACH), and Store Capital Corporation (NYSE:STOR). This group of stocks' market values resemble AAXN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FTCH,37,837456,15 DCI,27,226099,7 ST,33,1073165,7 SC,20,561451,0 BG,37,620306,-2 ACH,6,3451,4 STOR,16,689832,-9 Average,25.1,573109,3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $573 million. That figure was $609 million in AAXN's case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Axon Enterprise, Inc. (NASDAQ:AAXN) is more popular among hedge funds. Our overall hedge fund sentiment score for AAXN 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately AAXN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on AAXN were disappointed as the stock returned 0.8% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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