Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index returned approximately 26% (including dividend payments) through November 22nd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Anaplan, Inc. (NYSE:PLAN).
Anaplan, Inc. (NYSE:PLAN) has seen an increase in enthusiasm from smart money in recent months. PLAN was in 42 hedge funds’ portfolios at the end of the third quarter of 2019. That’s another all time high for Anaplan. There were 37 hedge funds in our database with PLAN positions at the end of the previous quarter. Our calculations also showed that PLAN isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Philippe Laffont of Coatue Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the key hedge fund action encompassing Anaplan, Inc. (NYSE:PLAN).
How are hedge funds trading Anaplan, Inc. (NYSE:PLAN)?
At Q3’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in PLAN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Coatue Management was the largest shareholder of Anaplan, Inc. (NYSE:PLAN), with a stake worth $602.2 million reported as of the end of September. Trailing Coatue Management was Melvin Capital Management, which amassed a stake valued at $238.9 million. Whale Rock Capital Management, D1 Capital Partners, and Alkeon Capital Management 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 Berylson Capital Partners allocated the biggest weight to Anaplan, Inc. (NYSE:PLAN), around 9.05% of its portfolio. Kayak Investment Partners is also relatively very bullish on the stock, earmarking 6.5 percent of its 13F equity portfolio to PLAN.
As aggregate interest increased, key money managers have jumped into Anaplan, Inc. (NYSE:PLAN) headfirst. Whale Rock Capital Management, managed by Alex Sacerdote, created the most valuable position in Anaplan, Inc. (NYSE:PLAN). Whale Rock Capital Management had $180.7 million invested in the company at the end of the quarter. Daniel Sundheim’s D1 Capital Partners also made a $155.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management, Stanley Druckenmiller’s Duquesne Capital, and Chase Coleman’s Tiger Global Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Anaplan, Inc. (NYSE:PLAN) but similarly valued. We will take a look at Owl Rock Capital Corporation (NYSE:ORCC), Brixmor Property Group Inc (NYSE:BRX), Healthcare Trust Of America Inc (NYSE:HTA), and Zscaler, Inc. (NASDAQ:ZS). This group of stocks’ market values are closest to PLAN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORCC | 6 | 141871 | 6 |
| BRX | 16 | 118738 | 1 |
| HTA | 18 | 270702 | 5 |
| ZS | 20 | 133861 | -5 |
| Average | 15 | 166293 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $2009 million in PLAN’s case. Zscaler, Inc. (NASDAQ:ZS) is the most popular stock in this table. On the other hand Owl Rock Capital Corporation (NYSE:ORCC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Anaplan, Inc. (NYSE:PLAN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on PLAN as the stock returned 13.3% during Q4 (through 11/22) 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.
Disclosure: None. This article was originally published at Insider Monkey.
