Arista Networks Inc (ANET): Hedge Funds De-risking

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Arista Networks Inc (NYSE:ANET) based on that data.

Arista Networks Inc (NYSE:ANET) was in 24 hedge funds’ portfolios at the end of March. ANET shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 26 hedge funds in our database with ANET positions at the end of the previous quarter. Our calculations also showed that ANET 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.

In the eyes of most shareholders, hedge funds are perceived as underperforming, old investment vehicles of the past. While there are greater than 8000 funds trading at the moment, We hone in on the elite of this group, around 850 funds. These hedge fund managers preside over most of the hedge fund industry’s total asset base, and by following their best picks, Insider Monkey has brought to light several investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Gil Simon of SoMa Equity Partners

Gil Simon of SoMa Equity Partners

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 these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action encompassing Arista Networks Inc (NYSE:ANET).

How are hedge funds trading Arista Networks Inc (NYSE:ANET)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ANET over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the number one position in Arista Networks Inc (NYSE:ANET), worth close to $205.2 million, comprising 0.2% of its total 13F portfolio. On Renaissance Technologies’s heels is SoMa Equity Partners, led by Gil Simon, holding a $81 million position; 4.5% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism contain Brian Ashford-Russell and Tim Woolley’s Polar Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Arista Networks Inc (NYSE:ANET), around 5.87% of its 13F portfolio. SoMa Equity Partners is also relatively very bullish on the stock, designating 4.55 percent of its 13F equity portfolio to ANET.

Seeing as Arista Networks Inc (NYSE:ANET) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few funds that slashed their entire stakes in the first quarter. Interestingly, Brad Farber’s Atika Capital dropped the biggest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $2.5 million in stock, and Leon Shaulov’s Maplelane Capital was right behind this move, as the fund dropped about $1.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Arista Networks Inc (NYSE:ANET) but similarly valued. We will take a look at Arthur J. Gallagher & Co. (NYSE:AJG), Stanley Black & Decker, Inc. (NYSE:SWK), Marathon Petroleum Corp (NYSE:MPC), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). This group of stocks’ market caps are closest to ANET’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AJG 28 373347 -3
SWK 36 907916 -5
MPC 57 996652 -12
CHKP 29 599085 -1
Average 37.5 719250 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $719 million. That figure was $471 million in ANET’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Arthur J. Gallagher & Co. (NYSE:AJG) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Arista Networks Inc (NYSE:ANET) is even less popular than AJG. Hedge funds dodged a bullet by taking a bearish stance towards ANET. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately ANET wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ANET investors were disappointed as the stock returned 14.9% during the second quarter (through June 10th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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