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Were Hedge Funds Right About Piling Into HubSpot Inc (HUBS)?

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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards HubSpot Inc (NYSE:HUBS) to find out whether there were any major changes in hedge funds' views.

HubSpot Inc (NYSE:HUBS) was in 52 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. HUBS shareholders have witnessed an increase in enthusiasm from smart money lately. There were 40 hedge funds in our database with HUBS positions at the end of the third quarter. Our calculations also showed that HUBS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 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.

Billionaire Ken Griffin's Top 10 Stocks Holdings
Billionaire Ken Griffin's Top 10 Stocks Holdings

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 we're going to take a peek at the key hedge fund action regarding HubSpot Inc (NYSE:HUBS).

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

Heading into the first quarter of 2021, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HUBS over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in HubSpot Inc (NYSE:HUBS) was held by SCGE Management, which reported holding $558.2 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $211.9 million position. Other investors bullish on the company included Polar Capital, Hitchwood Capital Management, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to HubSpot Inc (NYSE:HUBS), around 10.86% of its 13F portfolio. Greenlea Lane Capital is also relatively very bullish on the stock, designating 9.97 percent of its 13F equity portfolio to HUBS.

Consequently, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most outsized position in HubSpot Inc (NYSE:HUBS). Arrowstreet Capital had $5.4 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also made a $5 million investment in the stock during the quarter. The other funds with brand new HUBS positions are Eric Bannasch's Cadian Capital, Anand Parekh's Alyeska Investment Group, and Kevin McCarthy's Breakline Capital.

Let's also examine hedge fund activity in other stocks similar to HubSpot Inc (NYSE:HUBS). These stocks are Clarivate Plc (NYSE:CCC), The Cooper Companies, Inc. (NYSE:COO), Conagra Brands, Inc. (NYSE:CAG), Broadridge Financial Solutions, Inc. (NYSE:BR), Martin Marietta Materials, Inc. (NYSE:MLM), NovoCure Limited (NASDAQ:NVCR), and Tyler Technologies, Inc. (NYSE:TYL). This group of stocks' market valuations are closest to HUBS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCC,40,5223432,3 COO,31,1349415,1 CAG,28,634446,-7 BR,25,244137,-8 MLM,41,2010592,3 NVCR,22,417787,0 TYL,32,592915,1 Average,31.3,1496103,-1 [/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 $1496 million. That figure was $1562 million in HUBS's case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand NovoCure Limited (NASDAQ:NVCR) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks HubSpot Inc (NYSE:HUBS) is more popular among hedge funds. Our overall hedge fund sentiment score for HUBS 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on HUBS as the stock returned 32.8% since the end of December (through 4/30) 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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