Did Hedge Funds Make The Right Call On Ubiquiti Inc. (UI) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Ubiquiti Inc. (NYSE:UI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Ubiquiti Inc. (NYSE:UI) was in 23 hedge funds’ portfolios at the end of March. UI has seen a decrease in hedge fund interest recently. There were 25 hedge funds in our database with UI positions at the end of the previous quarter. Our calculations also showed that UI 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.

According to most stock holders, hedge funds are viewed as unimportant, outdated investment vehicles of years past. While there are more than 8000 funds in operation at the moment, Our researchers look at the moguls of this club, about 850 funds. It is estimated that this group of investors manage bulk of all hedge funds’ total asset base, and by observing their highest performing stock picks, Insider Monkey has unearthed a number of investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a 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 .


Jim Simons Founder of Renaissance Technologies

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. With all of this in mind we’re going to review the recent hedge fund action surrounding Ubiquiti Inc. (NYSE:UI).

Hedge fund activity in Ubiquiti Inc. (NYSE:UI)

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UI over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in Ubiquiti Inc. (NYSE:UI). Renaissance Technologies has a $104.9 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $17.8 million call position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Lee Ainslie’s Maverick Capital and Harry Gail’s Harspring Capital Management. In terms of the portfolio weights assigned to each position Harspring Capital Management allocated the biggest weight to Ubiquiti Inc. (NYSE:UI), around 4.35% of its 13F portfolio. Old Well Partners is also relatively very bullish on the stock, designating 1.41 percent of its 13F equity portfolio to UI.

Due to the fact that Ubiquiti Inc. (NYSE:UI) has experienced bearish sentiment from the smart money, logic holds that there lies a certain “tier” of hedgies that slashed their entire stakes heading into Q4. It’s worth mentioning that Gregory Bylinsky and Jefferson Gramm’s Bandera Partners dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $19.6 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dropped about $6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ubiquiti Inc. (NYSE:UI) but similarly valued. These stocks are Coupa Software Incorporated (NASDAQ:COUP), The AES Corporation (NYSE:AES), Teradyne, Inc. (NASDAQ:TER), and ONEOK, Inc. (NYSE:OKE). This group of stocks’ market caps match UI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COUP 66 2184206 11
AES 31 445516 4
TER 28 842457 -5
OKE 25 135073 -6
Average 37.5 901813 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $902 million. That figure was $162 million in UI’s case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand ONEOK, Inc. (NYSE:OKE) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Ubiquiti Inc. (NYSE:UI) is even less popular than OKE. 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 managed to beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on UI, though not to the same extent, as the stock returned 23.5% during the second quarter and outperformed the market as well.

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