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Were Hedge Funds Right About Crowding CrowdStrike Holdings, Inc. (CRWD)?

Reymerlyn Martin
·7 min read

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 Peltz's recent General Electric 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 CrowdStrike Holdings, Inc. (NASDAQ:CRWD).

Is CrowdStrike Holdings, Inc. (NASDAQ:CRWD) a buy here? Hedge funds were taking an optimistic view. The number of long hedge fund positions improved by 13 recently. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) was in 78 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 65. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CRWD 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). There were 65 hedge funds in our database with CRWD holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Chase Coleman of Tiger Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar 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. Keeping this in mind let's take a glance at the latest hedge fund action surrounding CrowdStrike Holdings, Inc. (NASDAQ:CRWD).

What does smart money think about CrowdStrike Holdings, Inc. (NASDAQ:CRWD)?

At the end of June, a total of 78 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in CRWD over the last 20 quarters. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Tiger Global Management LLC held the most valuable stake in CrowdStrike Holdings, Inc. (NASDAQ:CRWD), which was worth $505.7 million at the end of the third quarter. On the second spot was Coatue Management which amassed $444.3 million worth of shares. Matrix Capital Management, Whale Rock Capital Management, and Renaissance Technologies 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 Totem Point Management allocated the biggest weight to CrowdStrike Holdings, Inc. (NASDAQ:CRWD), around 8.18% of its 13F portfolio. DSAM Partners is also relatively very bullish on the stock, designating 5.34 percent of its 13F equity portfolio to CRWD.

As aggregate interest increased, specific money managers have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, created the biggest position in CrowdStrike Holdings, Inc. (NASDAQ:CRWD). Moore Global Investments had $45.3 million invested in the company at the end of the quarter. John Hurley's Cavalry Asset Management also made a $25.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Stuart J. Zimmer's Zimmer Partners, Josh Donfeld and David Rogers's Castle Hook Partners, and Neal Nathani and Darren Dinneen's Totem Point Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as CrowdStrike Holdings, Inc. (NASDAQ:CRWD) but similarly valued. We will take a look at Align Technology, Inc. (NASDAQ:ALGN), Welltower Inc. (NYSE:WELL), Sun Life Financial Inc. (NYSE:SLF), Stanley Black & Decker, Inc. (NYSE:SWK), Skyworks Solutions Inc (NASDAQ:SWKS), Trane Technologies plc (NYSE:TT), and TELUS Corporation (NYSE:TU). This group of stocks' market valuations match CRWD's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALGN,41,1960739,2 WELL,27,655260,2 SLF,14,85306,-2 SWK,33,807322,-3 SWKS,49,993689,20 TT,40,730073,4 TU,15,194956,0 Average,31.3,775335,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $775 million. That figure was $3278 million in CRWD's case. Skyworks Solutions Inc (NASDAQ:SWKS) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is more popular among hedge funds. Our overall hedge fund sentiment score for CRWD 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on CRWD as the stock returned 44.9% since the end of June (through 10/16) 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.

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