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Where Do Hedge Funds Stand On Unity Software Inc. (U)?

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As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Unity Software Inc. (NYSE:U).

Unity Software Inc. (NYSE:U) investors should be aware of an increase in enthusiasm from smart money of late. Unity Software Inc. (NYSE:U) was in 39 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 32 hedge funds in our database with U positions at the end of the fourth quarter. Our calculations also showed that U isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey, we scour multiple sources to uncover 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 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 review the recent hedge fund action regarding Unity Software Inc. (NYSE:U).

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

At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards U over the last 23 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is U A Good Stock To Buy?
Is U A Good Stock To Buy?

The largest stake in Unity Software Inc. (NYSE:U) was held by Silver Lake Partners, which reported holding $4090.6 million worth of stock at the end of December. It was followed by ARK Investment Management with a $812.2 million position. Other investors bullish on the company included D1 Capital Partners, Altimeter Capital Management, and Jasper Ridge Partners. In terms of the portfolio weights assigned to each position Silver Lake Partners allocated the biggest weight to Unity Software Inc. (NYSE:U), around 40.77% of its 13F portfolio. Marcho Partners is also relatively very bullish on the stock, earmarking 8.91 percent of its 13F equity portfolio to U.

As one would reasonably expect, specific money managers have jumped into Unity Software Inc. (NYSE:U) headfirst. Holocene Advisors, managed by Brandon Haley, initiated the biggest position in Unity Software Inc. (NYSE:U). Holocene Advisors had $93.6 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $75.1 million investment in the stock during the quarter. The other funds with brand new U positions are Greg Poole's Echo Street Capital Management, Sahm Adrangi's Kerrisdale Capital, and Rick Slocum's Harvard Management Co.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Unity Software Inc. (NYSE:U) but similarly valued. We will take a look at Ball Corporation (NYSE:BLL), Lennar Corporation (NYSE:LEN), Teladoc Health, Inc (NYSE:TDOC), The Kroger Co. (NYSE:KR), American Water Works Company, Inc. (NYSE:AWK), Ameriprise Financial, Inc. (NYSE:AMP), and Tyson Foods, Inc. (NYSE:TSN). This group of 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 BLL,38,1407192,-6 LEN,49,1570352,-3 TDOC,42,3372133,-8 KR,35,3155231,-1 AWK,30,1109517,-6 AMP,37,969834,3 TSN,28,761852,-10 Average,37,1763730,-4.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1764 million. That figure was $6694 million in U's case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Tyson Foods, Inc. (NYSE:TSN) is the least popular one with only 28 bullish hedge fund positions. Unity Software Inc. (NYSE:U) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for U is 66.2. 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 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Hedge funds were also right about betting on U, though not to the same extent, as the stock returned 9.8% since Q1 (through June 25th) and outperformed the market as well.

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