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Did Hedge Funds Make The Right Call On New Relic Inc (NEWR) ?

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 thoughtNew Relic Inc (NYSE:NEWR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

New Relic Inc (NYSE:NEWR) has experienced a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that NEWR 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.

If you’d ask most shareholders, hedge funds are perceived as slow, outdated financial vehicles of years past. While there are over 8000 funds with their doors open today, Our researchers choose to focus on the moguls of this group, approximately 850 funds. These hedge fund managers manage bulk of the smart money’s total asset base, and by tracking their matchless equity investments, Insider Monkey has discovered numerous investment strategies that have historically outstripped the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum 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 .

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s view the fresh hedge fund action surrounding New Relic Inc (NYSE:NEWR).

How have hedgies been trading New Relic Inc (NYSE:NEWR)?

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NEWR over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NEWR A Good Stock To Buy?

Among these funds, Eminence Capital held the most valuable stake in New Relic Inc (NYSE:NEWR), which was worth $177.2 million at the end of the third quarter. On the second spot was HMI Capital which amassed $137.7 million worth of shares. Matrix Capital Management, Tiger Global Management LLC, and JANA Partners 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 Archon Capital Management allocated the biggest weight to New Relic Inc (NYSE:NEWR), around 10.64% of its 13F portfolio. HMI Capital is also relatively very bullish on the stock, dishing out 9.14 percent of its 13F equity portfolio to NEWR.

Seeing as New Relic Inc (NYSE:NEWR) has experienced falling interest from the aggregate hedge fund industry, we can see that there is a sect of funds who sold off their full holdings heading into Q4. At the top of the heap, Josh Resnick’s Jericho Capital Asset Management cut the largest investment of all the hedgies followed by Insider Monkey, comprising an estimated $39.1 million in stock. Renaissance Technologies, also dropped its stock, about $32.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 13 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to New Relic Inc (NYSE:NEWR). We will take a look at WD-40 Company (NASDAQ:WDFC), Livongo Health, Inc. (NASDAQ:LVGO), Cosan Limited (NYSE:CZZ), and Blackbaud, Inc. (NASDAQ:BLKB). This group of stocks’ market caps are closest to NEWR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WDFC 17 199539 0
LVGO 17 82549 -1
CZZ 15 141907 3
BLKB 22 107618 6
Average 17.75 132903 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $810 million in NEWR’s case. Blackbaud, Inc. (NASDAQ:BLKB) is the most popular stock in this table. On the other hand Cosan Limited (NYSE:CZZ) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks New Relic Inc (NYSE:NEWR) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on NEWR as the stock returned 49% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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