Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Ubiquiti Inc. (NYSE:UI)? The smart money sentiment can provide an answer to this question.
Is UI a good stock to buy? Ubiquiti Inc. (NYSE:UI) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds' portfolios at the end of March. Our calculations also showed that UI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as CGI Inc. (NYSE:GIB), MarketAxess Holdings Inc. (NASDAQ:MKTX), and Coupa Software Incorporated (NASDAQ:COUP) to gather more data points.
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 115 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.
Donald Sussman of Paloma Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. Now let's view the key hedge fund action regarding Ubiquiti Inc. (NYSE:UI).
Do Hedge Funds Think UI Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in UI a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Ubiquiti Inc. (NYSE:UI), which was worth $170 million at the end of the fourth quarter. On the second spot was Arrowstreet Capital which amassed $30 million worth of shares. SW Investment Management, Citadel Investment Group, and GLG Partners 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 SW Investment Management allocated the biggest weight to Ubiquiti Inc. (NYSE:UI), around 13.6% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, dishing out 0.64 percent of its 13F equity portfolio to UI.
Judging by the fact that Ubiquiti Inc. (NYSE:UI) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedge funds who sold off their positions entirely in the first quarter. Intriguingly, Israel Englander's Millennium Management cut the largest stake of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $2.5 million in stock, and Ray Dalio's Bridgewater Associates was right behind this move, as the fund sold off about $2.4 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Ubiquiti Inc. (NYSE:UI) but similarly valued. These stocks are CGI Inc. (NYSE:GIB), MarketAxess Holdings Inc. (NASDAQ:MKTX), Coupa Software Incorporated (NASDAQ:COUP), Darden Restaurants, Inc. (NYSE:DRI), Live Nation Entertainment, Inc. (NYSE:LYV), Conagra Brands, Inc. (NYSE:CAG), and United Airlines Holdings Inc (NYSE:UAL). All of these stocks' market caps match UI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GIB,15,187732,0 MKTX,34,672097,0 COUP,50,3702472,-12 DRI,49,1315631,7 LYV,37,1325005,-9 CAG,30,700335,2 UAL,38,1024160,-14 Average,36.1,1275347,-3.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $1275 million. That figure was $279 million in UI's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 15 bullish hedge fund positions. Ubiquiti Inc. (NYSE:UI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UI is 30.4. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately UI wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); UI investors were disappointed as the stock returned -1.1% since the end of March (through 7/16) 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 in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.