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CrowdStrike Holdings, Inc. (CRWD): Hedge Funds Had A Sudden Change of Heart

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like CrowdStrike Holdings, Inc. (NASDAQ:CRWD).

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) was in 28 hedge funds’ portfolios at the end of the third quarter of 2019. CRWD has seen a decrease in activity from the world’s largest hedge funds lately. There were 41 hedge funds in our database with CRWD positions at the end of the previous quarter. Our calculations also showed that CRWD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman of Tiger Global

Chase Coleman of Tiger Global

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s review the fresh hedge fund action surrounding CrowdStrike Holdings, Inc. (NASDAQ:CRWD).

How have hedgies been trading CrowdStrike Holdings, Inc. (NASDAQ:CRWD)?

Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CRWD over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CRWD_dec2019

More specifically, Jericho Capital Asset Management was the largest shareholder of CrowdStrike Holdings, Inc. (NASDAQ:CRWD), with a stake worth $119.5 million reported as of the end of September. Trailing Jericho Capital Asset Management was Whale Rock Capital Management, which amassed a stake valued at $53.8 million. Tiger Global Management, Sculptor Capital, and HBK Investments 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 Jericho Capital Asset Management allocated the biggest weight to CrowdStrike Holdings, Inc. (NASDAQ:CRWD), around 6.82% of its portfolio. Ratan Capital Group is also relatively very bullish on the stock, earmarking 2.33 percent of its 13F equity portfolio to CRWD.

Judging by the fact that CrowdStrike Holdings, Inc. (NASDAQ:CRWD) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of fund managers that elected to cut their entire stakes heading into Q4. At the top of the heap, Gabriel Plotkin’s Melvin Capital Management sold off the biggest investment of all the hedgies monitored by Insider Monkey, worth close to $13.7 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also dumped its stock, about $13.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 13 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CrowdStrike Holdings, Inc. (NASDAQ:CRWD) but similarly valued. We will take a look at Universal Health Services, Inc. (NYSE:UHS), Vistra Energy Corp. (NYSE:VST), Fortinet Inc (NASDAQ:FTNT), and Genmab A/S (NASDAQ:GMAB). This group of stocks’ market valuations are similar to CRWD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UHS 26 562518 2
VST 42 2382348 3
FTNT 38 1187931 4
GMAB 10 136229 10
Average 29 1067257 4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1067 million. That figure was $274 million in CRWD’s case. Vistra Energy Corp. (NYSE:VST) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 10 bullish hedge fund positions. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CRWD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CRWD investors were disappointed as the stock returned -0.5% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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