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Hedge Funds Are Selling Chegg Inc (CHGG)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Chegg Inc (NYSE:CHGG) based on that data.

Chegg Inc (NYSE:CHGG) investors should be aware of a decrease in enthusiasm from smart money recently. CHGG was in 34 hedge funds’ portfolios at the end of March. There were 39 hedge funds in our database with CHGG positions at the end of the previous quarter. Our calculations also showed that CHGG isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action encompassing Chegg Inc (NYSE:CHGG).

Hedge fund activity in Chegg Inc (NYSE:CHGG)

At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHGG over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

More specifically, Sylebra Capital Management was the largest shareholder of Chegg Inc (NYSE:CHGG), with a stake worth $113.1 million reported as of the end of September. Trailing Sylebra Capital Management was Citadel Investment Group, which amassed a stake valued at $37.3 million. Greenhouse Funds, Zevenbergen Capital Investments, and D E Shaw 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 Act II Capital allocated the biggest weight to Chegg Inc (NYSE:CHGG), around 14.63% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, setting aside 8.12 percent of its 13F equity portfolio to CHGG.

Due to the fact that Chegg Inc (NYSE:CHGG) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that slashed their full holdings heading into Q4. Interestingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $40 million in stock, and James Crichton’s Hitchwood Capital Management was right behind this move, as the fund cut about $37.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 5 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Chegg Inc (NYSE:CHGG). These stocks are Robert Half International Inc. (NYSE:RHI), Flowers Foods, Inc. (NYSE:FLO), National Instruments Corporation (NASDAQ:NATI), and MDU Resources Group Inc (NYSE:MDU). This group of stocks’ market values are closest to CHGG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RHI 26 247265 3
FLO 27 227639 7
NATI 29 706256 -1
MDU 25 183156 -5
Average 26.75 341079 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $341 million. That figure was $303 million in CHGG’s case. National Instruments Corporation (NASDAQ:NATI) is the most popular stock in this table. On the other hand MDU Resources Group Inc (NYSE:MDU) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Chegg Inc (NYSE:CHGG) is more popular among hedge funds. 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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on CHGG as the stock returned 70.7% so far in Q2 (through the end of May) 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.