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Is Splunk Inc (SPLK) Going to Burn These Hedge Funds?

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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Splunk Inc (NASDAQ:SPLK).

Splunk Inc (NASDAQ:SPLK) investors should be aware of an increase in enthusiasm from smart money in recent months. Splunk Inc (NASDAQ:SPLK) was in 47 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 49. There were 41 hedge funds in our database with SPLK holdings at the end of March. Our calculations also showed that SPLK isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bill Miller
Bill Miller

Bill Miller of Miller Value Partners

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. With all of this in mind let's take a look at the key hedge fund action encompassing Splunk Inc (NASDAQ:SPLK).

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

At the end of the second quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from one quarter earlier. On the other hand, there were a total of 49 hedge funds with a bullish position in SPLK a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Splunk Inc (NASDAQ:SPLK). Citadel Investment Group has a $283.1 million call position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Iridian Asset Management, led by David Cohen and Harold Levy, holding a $171.3 million position; the fund has 3% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions consist of Israel Englander's Millennium Management, Bill Miller's Miller Value Partners and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Newbrook Capital Advisors allocated the biggest weight to Splunk Inc (NASDAQ:SPLK), around 4.98% of its 13F portfolio. XN Exponent Advisors is also relatively very bullish on the stock, earmarking 3.52 percent of its 13F equity portfolio to SPLK.

As one would reasonably expect, specific money managers were breaking ground themselves. Miller Value Partners, managed by Bill Miller, established the largest position in Splunk Inc (NASDAQ:SPLK). Miller Value Partners had $129.8 million invested in the company at the end of the quarter. Gaurav Kapadia's XN Exponent Advisors also initiated a $74.6 million position during the quarter. The other funds with new positions in the stock are Robert Boucai's Newbrook Capital Advisors, Joseph Samuels's Islet Management, and John Brennan's Sirios Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Splunk Inc (NASDAQ:SPLK) but similarly valued. These stocks are Canon Inc. (NYSE:CAJ), Fortive Corporation (NYSE:FTV), McCormick & Company, Incorporated (NYSE:MKC), Cerner Corporation (NASDAQ:CERN), United Microelectronics Corp (NYSE:UMC), POSCO (NYSE:PKX), and Vulcan Materials Company (NYSE:VMC). This group of stocks' market valuations are similar to SPLK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAJ,8,53729,-1 FTV,31,2235231,4 MKC,34,2032436,-1 CERN,38,1394559,-2 UMC,10,141218,-1 PKX,12,161569,0 VMC,43,1374916,-5 Average,25.1,1056237,-0.9 [/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 $1056 million. That figure was $1186 million in SPLK's case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Splunk Inc (NASDAQ:SPLK) is more popular among hedge funds. Our overall hedge fund sentiment score for SPLK is 88.8. 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 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Unfortunately SPLK wasn't nearly as popular as these 5 stocks and hedge funds that were betting on SPLK were disappointed as the stock returned 0.4% since the end of the second quarter (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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