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Did Hedge Funds Make The Right Call On PagerDuty, Inc. (PD) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards PagerDuty, Inc. (NYSE:PD) and determine whether hedge funds skillfully traded this stock.

PagerDuty, Inc. (NYSE:PD) investors should be aware of an increase in support from the world’s most elite money managers recently. PD was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with PD positions at the end of the previous quarter. Our calculations also showed that PD 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 traders, hedge funds are assumed to be slow, old investment tools of years past. While there are more than 8000 funds trading at present, Our experts hone in on the crème de la crème of this group, about 850 funds. It is estimated that this group of investors command the majority of the hedge fund industry’s total asset base, and by tracking their highest performing picks, Insider Monkey has discovered a number of investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year 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 .

David Atterbury - Whetstone Capital

David Atterbury of Whetstone Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. 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 if you have any good ideas send us an email. Now we’re going to take a look at the recent hedge fund action regarding PagerDuty, Inc. (NYSE:PD).

Hedge fund activity in PagerDuty, Inc. (NYSE:PD)

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in PD a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Bares Capital Management held the most valuable stake in PagerDuty, Inc. (NYSE:PD), which was worth $9.7 million at the end of the third quarter. On the second spot was Whetstone Capital Advisors which amassed $9.5 million worth of shares. Renaissance Technologies, Millennium Management, and Lakewood Capital Management 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 Whetstone Capital Advisors allocated the biggest weight to PagerDuty, Inc. (NYSE:PD), around 3.26% of its 13F portfolio. Kayak Investment Partners is also relatively very bullish on the stock, setting aside 0.55 percent of its 13F equity portfolio to PD.

With a general bullishness amongst the heavyweights, some big names have jumped into PagerDuty, Inc. (NYSE:PD) headfirst. Bares Capital Management, managed by Brian Bares, established the biggest position in PagerDuty, Inc. (NYSE:PD). Bares Capital Management had $9.7 million invested in the company at the end of the quarter. David Atterbury’s Whetstone Capital Advisors also made a $9.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Anthony Bozza’s Lakewood Capital Management, and Brandon Haley’s Holocene Advisors.

Let’s check out hedge fund activity in other stocks similar to PagerDuty, Inc. (NYSE:PD). These stocks are Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), Cortexyme, Inc. (NASDAQ:CRTX), AtriCure Inc. (NASDAQ:ATRC), and Green Dot Corporation (NYSE:GDOT). This group of stocks’ market caps match PD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KLIC 19 231499 -3
CRTX 6 14838 5
ATRC 20 185400 2
GDOT 22 376626 -1
Average 16.75 202091 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $202 million. That figure was $54 million in PD’s case. Green Dot Corporation (NYSE:GDOT) is the most popular stock in this table. On the other hand Cortexyme, Inc. (NASDAQ:CRTX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks PagerDuty, Inc. (NYSE:PD) 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 PD as the stock returned 65.6% 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.