Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about DocuSign, Inc. (NASDAQ:DOCU).
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’ 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to take a gander at the recent hedge fund action surrounding DocuSign, Inc. (NASDAQ:DOCU).
Hedge fund activity in DocuSign, Inc. (NASDAQ:DOCU)
At the end of the third quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 85% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in DOCU over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Brookside Capital held the most valuable stake in DocuSign, Inc. (NASDAQ:DOCU), which was worth $287.6 million at the end of the third quarter. On the second spot was Alta Park Capital which amassed $78.8 million worth of shares. Moreover, Alyeska Investment Group, EastBay Asset Management, and Citadel Investment Group were also bullish on DocuSign, Inc. (NASDAQ:DOCU), allocating a large percentage of their portfolios to this stock.
Consequently, key hedge funds were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, established the most outsized position in DocuSign, Inc. (NASDAQ:DOCU). Alyeska Investment Group had $46.5 million invested in the company at the end of the quarter. Adam Wolfberg and Steven Landry’s EastBay Asset Management also initiated a $16.6 million position during the quarter. The other funds with new positions in the stock are Daniel Patrick Gibson’s Sylebra Capital Management, Louis Bacon’s Moore Global Investments, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s also examine hedge fund activity in other stocks similar to DocuSign, Inc. (NASDAQ:DOCU). These stocks are Fluor Corporation (NYSE:FLR), Guidewire Software Inc (NYSE:GWRE), CDK Global Inc (NASDAQ:CDK), and Aspen Technology, Inc. (NASDAQ:AZPN). This group of stocks’ market caps match DOCU’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $747 million. That figure was $583 million in DOCU’s case. Guidewire Software Inc (NYSE:GWRE) is the most popular stock in this table. On the other hand Fluor Corporation (NYSE:FLR) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks DocuSign, Inc. (NASDAQ:DOCU) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.