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Did Hedge Funds Make The Right Call On HubSpot Inc (HUBS) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of HubSpot Inc (NYSE:HUBS) based on that data and determine whether they were really smart about the stock.

HubSpot Inc (NYSE:HUBS) shareholders have witnessed a decrease in hedge fund interest lately. Our calculations also showed that HUBS 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Lone Pine Capital 2015 Q2 Investor Letter

Stephen Mandel of Lone Pine Capital

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. Keeping this in mind we’re going to take a glance at the latest hedge fund action surrounding HubSpot Inc (NYSE:HUBS).

How have hedgies been trading HubSpot Inc (NYSE:HUBS)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HUBS over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is HUBS A Good Stock To Buy?

More specifically, SCGE Management was the largest shareholder of HubSpot Inc (NYSE:HUBS), with a stake worth $178.6 million reported as of the end of September. Trailing SCGE Management was Citadel Investment Group, which amassed a stake valued at $122.6 million. Lone Pine Capital, Two Sigma Advisors, and Polar Capital 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 North Peak Capital allocated the biggest weight to HubSpot Inc (NYSE:HUBS), around 16.62% of its 13F portfolio. Diker Management is also relatively very bullish on the stock, dishing out 7.53 percent of its 13F equity portfolio to HUBS.

Since HubSpot Inc (NYSE:HUBS) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers that slashed their entire stakes by the end of the first quarter. Intriguingly, David Fiszel’s Honeycomb Asset Management dropped the biggest position of the 750 funds tracked by Insider Monkey, worth close to $23.8 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $15.6 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as HubSpot Inc (NYSE:HUBS) but similarly valued. These stocks are Royal Gold, Inc (NASDAQ:RGLD), AGNC Investment Corp. (NASDAQ:AGNC), Melco Resorts & Entertainment Limited (NASDAQ:MLCO), and The Scotts Miracle-Gro Company (NYSE:SMG). All of these stocks’ market caps resemble HUBS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RGLD 28 237256 -2
AGNC 27 302699 6
MLCO 28 482233 -7
SMG 28 256079 -3
Average 27.75 319567 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $662 million in HUBS’s case. Royal Gold, Inc (NASDAQ:RGLD) is the most popular stock in this table. On the other hand AGNC Investment Corp. (NASDAQ:AGNC) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks HubSpot Inc (NYSE:HUBS) is even less popular than AGNC. Hedge funds clearly dropped the ball on HUBS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on HUBS as the stock returned 68.4% in the second quarter and outperformed the market by an even larger margin.

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