Did Hedge Funds Make The Right Call On Axon Enterprise, Inc. (AAXN) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAxon Enterprise, Inc. (NASDAQ:AAXN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Axon Enterprise, Inc. (NASDAQ:AAXN) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that AAXN 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Colin Moran Abdiel Capital

Colin Moran of Abdiel Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the latest hedge fund action surrounding Axon Enterprise, Inc. (NASDAQ:AAXN).

Hedge fund activity in Axon Enterprise, Inc. (NASDAQ:AAXN)

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in AAXN a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Abdiel Capital Advisors was the largest shareholder of Axon Enterprise, Inc. (NASDAQ:AAXN), with a stake worth $172.3 million reported as of the end of September. Trailing Abdiel Capital Advisors was Polar Capital, which amassed a stake valued at $55.1 million. Broadwood Capital, Motley Fool Asset Management, and D E Shaw 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 Abdiel Capital Advisors allocated the biggest weight to Axon Enterprise, Inc. (NASDAQ:AAXN), around 8.06% of its 13F portfolio. Broadwood Capital is also relatively very bullish on the stock, earmarking 6.29 percent of its 13F equity portfolio to AAXN.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. PDT Partners, managed by Peter Muller, initiated the most valuable position in Axon Enterprise, Inc. (NASDAQ:AAXN). PDT Partners had $9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $8.1 million investment in the stock during the quarter. The other funds with brand new AAXN positions are Richard S. Meisenberg’s ACK Asset Management, Greg Eisner’s Engineers Gate Manager, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Axon Enterprise, Inc. (NASDAQ:AAXN) but similarly valued. We will take a look at Owens Corning (NYSE:OC), Kimco Realty Corp (NYSE:KIM), Arrow Electronics, Inc. (NYSE:ARW), and Invesco Ltd. (NYSE:IVZ). This group of stocks’ market values match AAXN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OC 30 398573 -17
KIM 22 55233 6
ARW 23 359067 -11
IVZ 26 114502 2
Average 25.25 231844 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $413 million in AAXN’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Kimco Realty Corp (NYSE:KIM) is the least popular one with only 22 bullish hedge fund positions. Axon Enterprise, Inc. (NASDAQ:AAXN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on AAXN as the stock returned 38.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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