Hedge Funds Are Cashing Out Of DocuSign, Inc. (DOCU)

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 DocuSign, Inc. (NASDAQ:DOCU).

DocuSign, Inc. (NASDAQ:DOCU) investors should pay attention to a decrease in support from the world’s most elite money managers of late. DocuSign, Inc. (NASDAQ:DOCU) was in 58 hedge funds’ portfolios at the end of June. The all time high for this statistic is 67. Our calculations also showed that DOCU isn’t among the 30 most popular stocks among hedge funds (click 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s take a look at the latest hedge fund action encompassing DocuSign, Inc. (NASDAQ:DOCU).

Do Hedge Funds Think DOCU Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. By comparison, 57 hedge funds held shares or bullish call options in DOCU a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, Tiger Global Management LLC was the largest shareholder of DocuSign, Inc. (NASDAQ:DOCU), with a stake worth $2035.3 million reported as of the end of June. Trailing Tiger Global Management LLC was ARK Investment Management, which amassed a stake valued at $784.8 million. Arrowstreet Capital, SCGE Management, and Citadel Investment Group 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 Cota Capital allocated the biggest weight to DocuSign, Inc. (NASDAQ:DOCU), around 7.74% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, designating 6.03 percent of its 13F equity portfolio to DOCU.

Because DocuSign, Inc. (NASDAQ:DOCU) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few funds that elected to cut their positions entirely heading into Q3. Intriguingly, Philippe Laffont’s Coatue Management cut the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at close to $46.1 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $39.7 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as DocuSign, Inc. (NASDAQ:DOCU) but similarly valued. These stocks are Freeport-McMoRan Inc. (NYSE:FCX), Ambev SA (NYSE:ABEV), BioNTech SE (NASDAQ:BNTX), Aon plc (NYSE:AON), IDEXX Laboratories, Inc. (NASDAQ:IDXX), General Dynamics Corporation (NYSE:GD), and Takeda Pharmaceutical Company Limited (NYSE:TAK). This group of stocks’ market values match DOCU’s market value.

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As you can see these stocks had an average of 39.6 hedge funds with bullish positions and the average amount invested in these stocks was $3320 million. That figure was $4611 million in DOCU’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) is the least popular one with only 18 bullish hedge fund positions. DocuSign, Inc. (NASDAQ:DOCU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DOCU is 63.5. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and beat the market again by 6.2 percentage points. Unfortunately DOCU wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DOCU were disappointed as the stock returned -5.6% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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