We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Coupa Software Incorporated (NASDAQ:COUP) and determine whether the smart money was really smart about this stock.
Coupa Software Incorporated (NASDAQ:COUP) was in 66 hedge funds' portfolios at the end of March. COUP has seen an increase in hedge fund sentiment lately. There were 55 hedge funds in our database with COUP positions at the end of the previous quarter. Our calculations also showed that COUP isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_735677" align="aligncenter" width="400"] Sander Gerber of Hudson Bay Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to go over the new hedge fund action regarding Coupa Software Incorporated (NASDAQ:COUP).
What does smart money think about Coupa Software Incorporated (NASDAQ:COUP)?
At the end of the first quarter, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards COUP over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Sylebra Capital Management held the most valuable stake in Coupa Software Incorporated (NASDAQ:COUP), which was worth $304.7 million at the end of the third quarter. On the second spot was Lone Pine Capital which amassed $296.8 million worth of shares. Alkeon Capital Management, Whale Rock Capital Management, and D E Shaw 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 Crosslink Capital allocated the biggest weight to Coupa Software Incorporated (NASDAQ:COUP), around 19.93% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, dishing out 17.38 percent of its 13F equity portfolio to COUP.
As one would reasonably expect, key hedge funds have jumped into Coupa Software Incorporated (NASDAQ:COUP) headfirst. OZ Management, managed by Daniel S. Och, assembled the largest position in Coupa Software Incorporated (NASDAQ:COUP). OZ Management had $35.9 million invested in the company at the end of the quarter. Nancy Zevenbergen's Zevenbergen Capital Investments also initiated a $27.4 million position during the quarter. The following funds were also among the new COUP investors: David Goel and Paul Ferri's Matrix Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Principal Global Investors's Columbus Circle Investors.
Let's now take a look at hedge fund activity in other stocks similar to Coupa Software Incorporated (NASDAQ:COUP). These stocks are The AES Corporation (NYSE:AES), Teradyne, Inc. (NYSE:TER), ONEOK, Inc. (NYSE:OKE), and Medical Properties Trust, Inc. (NYSE:MPW). All of these stocks' market caps are similar to COUP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AES,31,445516,4 TER,28,842457,-5 OKE,25,135073,-6 MPW,16,164781,2 Average,25,396957,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $397 million. That figure was $2184 million in COUP's case. The AES Corporation (NYSE:AES) is the most popular stock in this table. On the other hand Medical Properties Trust, Inc. (NYSE:MPW) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Coupa Software Incorporated (NASDAQ:COUP) is more popular among hedge funds. 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 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on COUP as the stock returned 96.3% so far in Q2 (through June 25th) 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.
Disclosure: None. This article was originally published at Insider Monkey.