We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards 8×8, Inc. (NASDAQ:EGHT).
8×8, Inc. (NASDAQ:EGHT) was in 17 hedge funds’ portfolios at the end of December. EGHT investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 18 hedge funds in our database with EGHT positions at the end of the previous quarter. Our calculations also showed that EGHT isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s take a glance at the new hedge fund action encompassing 8×8, Inc. (NASDAQ:EGHT).
What have hedge funds been doing with 8×8, Inc. (NASDAQ:EGHT)?
At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in EGHT 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.
The largest stake in 8×8, Inc. (NASDAQ:EGHT) was held by Polar Capital, which reported holding $45.4 million worth of stock at the end of December. It was followed by Point72 Asset Management with a $31.7 million position. Other investors bullish on the company included Alyeska Investment Group, Citadel Investment Group, and Portolan Capital Management.
Because 8×8, Inc. (NASDAQ:EGHT) has faced bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds that slashed their entire stakes in the third quarter. At the top of the heap, John Smith Clark’s Southpoint Capital Advisors cut the biggest investment of all the hedgies tracked by Insider Monkey, worth about $21.3 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund sold off about $1.9 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to 8×8, Inc. (NASDAQ:EGHT). We will take a look at ESCO Technologies Inc. (NYSE:ESE), BGC Partners, Inc. (NASDAQ:BGCP), AnaptysBio, Inc. (NASDAQ:ANAB), and First Merchants Corporation (NASDAQ:FRME). This group of stocks’ market valuations are similar to EGHT’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $196 million in EGHT’s case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 5 bullish hedge fund positions. 8×8, Inc. (NASDAQ:EGHT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on EGHT as the stock returned 26.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.