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Were Hedge Funds Right About Unity Software Inc. (U)?

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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Unity Software Inc. (NYSE:U).

Unity Software Inc. (NYSE:U) shareholders have witnessed a decrease in hedge fund interest lately. Unity Software Inc. (NYSE:U) was in 29 hedge funds' portfolios at the end of June. The all time high for this statistic is 39. Our calculations also showed that U isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

To most stock holders, hedge funds are assumed to be worthless, outdated investment vehicles of the past. While there are more than 8000 funds trading at the moment, We look at the masters of this group, about 850 funds. These money managers handle most of the hedge fund industry's total asset base, and by observing their unrivaled picks, Insider Monkey has unearthed a few investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, 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 go over the key hedge fund action surrounding Unity Software Inc. (NYSE:U).

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

Heading into the third quarter of 2021, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in U a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Silver Lake Partners was the largest shareholder of Unity Software Inc. (NYSE:U), with a stake worth $4478.8 million reported as of the end of June. Trailing Silver Lake Partners was ARK Investment Management, which amassed a stake valued at $1297.1 million. D1 Capital Partners, Altimeter Capital Management, and Jasper Ridge 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 Silver Lake Partners allocated the biggest weight to Unity Software Inc. (NYSE:U), around 29.02% of its 13F portfolio. Marcho Partners is also relatively very bullish on the stock, dishing out 9.03 percent of its 13F equity portfolio to U.

Due to the fact that Unity Software Inc. (NYSE:U) has faced falling interest from the smart money, we can see that there were a few funds that decided to sell off their full holdings last quarter. At the top of the heap, Andreas Halvorsen's Viking Global dropped the biggest position of the "upper crust" of funds followed by Insider Monkey, comprising about $141.4 million in stock. Greg Poole's fund, Echo Street Capital Management, also dumped its stock, about $56.7 million worth. These moves are important to note, as total hedge fund interest fell by 10 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Unity Software Inc. (NYSE:U). These stocks are MPLX LP (NYSE:MPLX), Orange SA (NYSE:ORAN), TELUS Corporation (NYSE:TU), Zillow Group Inc (NASDAQ:Z), ANSYS, Inc. (NASDAQ:ANSS), Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX), and SVB Financial Group (NASDAQ:SIVB). All of these stocks' market caps are closest to U's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MPLX,11,115640,3 ORAN,3,13039,1 TU,13,215295,-5 Z,76,5243852,-6 ANSS,46,1459350,13 FMX,13,904303,-2 SIVB,49,1038598,0 Average,30.1,1284297,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $1284 million. That figure was $7264 million in U's case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. Unity Software Inc. (NYSE:U) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for U is 35.1. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on U as the stock returned 38.4% since the end of the second quarter (through 11/5) and outperformed the market by an even larger margin.

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