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Did Hedge Funds Make The Right Call On Veeva Systems Inc (VEEV) ?

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

Is Veeva Systems Inc (NYSE:VEEV) a buy here? The smart money was getting less optimistic. The number of bullish hedge fund positions shrunk by 11 in recent months. Our calculations also showed that VEEV 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.

Andrew Sandler of Sandler Capital Management

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. Keeping this in mind we’re going to go over the key hedge fund action surrounding Veeva Systems Inc (NYSE:VEEV).

How have hedgies been trading Veeva Systems Inc (NYSE:VEEV)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in VEEV a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Veeva Systems Inc (NYSE:VEEV), which was worth $62.8 million at the end of the third quarter. On the second spot was D E Shaw which amassed $59.1 million worth of shares. Citadel Investment Group, Skye Global Management, and Zevenbergen Capital Investments 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 Diker Management allocated the biggest weight to Veeva Systems Inc (NYSE:VEEV), around 4.39% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, setting aside 3.45 percent of its 13F equity portfolio to VEEV.

Seeing as Veeva Systems Inc (NYSE:VEEV) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there is a sect of money managers who were dropping their positions entirely in the first quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group cut the largest position of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $17.6 million in stock. Mark Wolfson and Jamie Alexander’s fund, Jasper Ridge Partners, also said goodbye to its stock, about $9.6 million worth. These moves are important to note, as total hedge fund interest dropped by 11 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Veeva Systems Inc (NYSE:VEEV). We will take a look at SYSCO Corporation (NYSE:SYY), Capital One Financial Corp. (NYSE:COF), Canon Inc. (NYSE:CAJ), and Equity Residential (NYSE:EQR). All of these stocks’ market caps are closest to VEEV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SYY 35 1783679 7
COF 50 1107098 0
CAJ 7 46934 -1
EQR 24 175386 -6
Average 29 778274 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $778 million. That figure was $353 million in VEEV’s case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 7 bullish hedge fund positions. Veeva Systems Inc (NYSE:VEEV) 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 VEEV as the stock returned 49.9% 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.