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Did Hedge Funds Make The Right Call On Elastic N.V. (ESTC) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Elastic N.V. (NYSE:ESTC) and determine whether the smart money was really smart about this stock.

Elastic N.V. (NYSE:ESTC) investors should pay attention to a decrease in hedge fund interest recently. Our calculations also showed that ESTC 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

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 let’s take a look at the recent hedge fund action surrounding Elastic N.V. (NYSE:ESTC).

What have hedge funds been doing with Elastic N.V. (NYSE:ESTC)?

Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ESTC over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is ESTC A Good Stock To Buy?

The largest stake in Elastic N.V. (NYSE:ESTC) was held by Sylebra Capital Management, which reported holding $322.8 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $224.3 million position. Other investors bullish on the company included Valinor Management LLC, Black-and-White Capital, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Sylebra Capital Management allocated the biggest weight to Elastic N.V. (NYSE:ESTC), around 13.22% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, setting aside 7.86 percent of its 13F equity portfolio to ESTC.

Due to the fact that Elastic N.V. (NYSE:ESTC) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers that slashed their entire stakes heading into Q4. At the top of the heap, Anand Parekh’s Alyeska Investment Group dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $52.9 million in stock. Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali’s fund, Alta Park Capital, also dropped its stock, about $14.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Elastic N.V. (NYSE:ESTC) but similarly valued. These stocks are WEX Inc (NYSE:WEX), Momo Inc (NASDAQ:MOMO), Pilgrim’s Pride Corporation (NASDAQ:PPC), and Woori Financial Group Inc. (NYSE:WF). This group of stocks’ market valuations are closest to ESTC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WEX 35 354821 10
MOMO 25 585481 -13
PPC 18 122135 -6
WF 3 2382 0
Average 20.25 266205 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $835 million in ESTC’s case. WEX Inc (NYSE:WEX) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 3 bullish hedge fund positions. Elastic N.V. (NYSE:ESTC) 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 ESTC as the stock returned 65.2% 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.