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Hedge Funds Are Absolutely Crazy About HubSpot Inc (HUBS)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding HubSpot Inc (NYSE:HUBS) and determine whether hedge funds had an edge regarding this stock.

HubSpot Inc (NYSE:HUBS) investors should be aware of an increase in enthusiasm from smart money lately. HubSpot Inc (NYSE:HUBS) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 27 hedge funds in our database with HUBS holdings at the end of March. Our calculations also showed that HUBS isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.

Ken Griffin

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding HubSpot Inc (NYSE:HUBS).

How are hedge funds trading HubSpot Inc (NYSE:HUBS)?

Heading into the third quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 52% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in HUBS over the last 20 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is HUBS A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, SCGE Management, managed by Christopher Lyle, holds the number one position in HubSpot Inc (NYSE:HUBS). SCGE Management has a $315.9 million position in the stock, comprising 6.1% of its 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $93.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish contain Michael Kahan and Jeremy Kahan’s North Peak Capital, John Overdeck and David Siegel’s Two Sigma Advisors and James Crichton’s Hitchwood Capital Management. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to HubSpot Inc (NYSE:HUBS), around 20.12% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, dishing out 6.1 percent of its 13F equity portfolio to HUBS.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Echo Street Capital Management, managed by Greg Poole, initiated the most valuable position in HubSpot Inc (NYSE:HUBS). Echo Street Capital Management had $29.7 million invested in the company at the end of the quarter. Girish Kumar’s TenCore Partners also initiated a $10.5 million position during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Highbridge Capital Management, and Robert Henry Lynch’s Aristeia Capital.

Let’s now take a look at hedge fund activity in other stocks similar to HubSpot Inc (NYSE:HUBS). These stocks are Avantor, Inc. (NYSE:AVTR), Qiagen NV (NASDAQ:QGEN), China Southern Airlines Co Ltd (NYSE:ZNH), RPM International Inc. (NYSE:RPM), Carlyle Group LP (NASDAQ:CG), Magellan Midstream Partners, L.P. (NYSE:MMP), and ASE Technology Holding Co., Ltd. (NYSE:ASX). This group of stocks’ market caps are similar to HUBS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVTR 34 646574 5
QGEN 32 652397 2
ZNH 2 7852 0
RPM 26 108615 4
CG 8 171536 -8
MMP 15 59070 2
ASX 11 167226 2
Average 18.3 259039 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $868 million in HUBS’s case. Avantor, Inc. (NYSE:AVTR) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks HubSpot Inc (NYSE:HUBS) is more popular among hedge funds. Our overall hedge fund sentiment score for HUBS is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on HUBS as the stock returned 33.6% since the end of June 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.