Hedge Fund Consensus Stocks vs. Mimecast Limited (MIME) In 2019

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Mimecast Limited (NASDAQ:MIME).

Mimecast Limited (NASDAQ:MIME) investors should be aware of an increase in enthusiasm from smart money recently. MIME was in 36 hedge funds’ portfolios at the end of September. There were 26 hedge funds in our database with MIME holdings at the end of the previous quarter. Our calculations also showed that MIME isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber Hudson Bay Capital Management

Sander Gerber of Hudson Bay Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a gander at the key hedge fund action regarding Mimecast Limited (NASDAQ:MIME).

How are hedge funds trading Mimecast Limited (NASDAQ:MIME)?

At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in MIME a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Mimecast Limited (NASDAQ:MIME) was held by Whale Rock Capital Management, which reported holding $135.3 million worth of stock at the end of September. It was followed by Abdiel Capital Advisors with a $131.4 million position. Other investors bullish on the company included SQN Investors, Renaissance Technologies, and Polar Capital. In terms of the portfolio weights assigned to each position Berylson Capital Partners allocated the biggest weight to Mimecast Limited (NASDAQ:MIME), around 10.77% of its 13F portfolio. Abdiel Capital Advisors is also relatively very bullish on the stock, dishing out 8.07 percent of its 13F equity portfolio to MIME.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Mimecast Limited (NASDAQ:MIME) headfirst. Carlson Capital, managed by Clint Carlson, initiated the most valuable position in Mimecast Limited (NASDAQ:MIME). Carlson Capital had $25.9 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $21.1 million investment in the stock during the quarter. The following funds were also among the new MIME investors: Sander Gerber’s Hudson Bay Capital Management, Bernard Selz’s Selz Capital, and James Thomas Berylson’s Berylson Capital Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Mimecast Limited (NASDAQ:MIME) but similarly valued. We will take a look at Washington Real Estate Investment Trust (NYSE:WRE), Stepan Company (NYSE:SCL), Invesco Mortgage Capital Inc (NYSE:IVR), and Innospec Inc. (NASDAQ:IOSP). This group of stocks’ market values are similar to MIME’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WRE 5 115764 -1
SCL 14 61752 3
IVR 17 85348 6
IOSP 19 98572 6
Average 13.75 90359 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $669 million in MIME’s case. Innospec Inc. (NASDAQ:IOSP) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Mimecast Limited (NASDAQ:MIME) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately MIME wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MIME were disappointed as the stock returned 30.8% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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