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Hedge Funds Can’t Get Enough Of New Relic Inc (NEWR)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like New Relic Inc (NYSE:NEWR).

New Relic Inc (NYSE:NEWR) investors should be aware of an increase in hedge fund sentiment recently. NEWR was in 35 hedge funds’ portfolios at the end of September. There were 29 hedge funds in our database with NEWR positions at the end of the previous quarter. Even though our calculations also showed that NEWR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings), overall hedge fund sentiment towards NEWR hit its all time high again this quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Charles Davidson - Wexford Capital

Charles Davidson of Wexford Capital

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 analyze the fresh hedge fund action surrounding New Relic Inc (NYSE:NEWR).

Hedge fund activity in New Relic Inc (NYSE:NEWR)

At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NEWR over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

NEWR_dec2019

The largest stake in New Relic Inc (NYSE:NEWR) was held by Tiger Global Management, which reported holding $179.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $67.5 million position. Other investors bullish on the company included Two Sigma Advisors, Renaissance Technologies, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position Archon Capital Management allocated the biggest weight to New Relic Inc (NYSE:NEWR), around 5.52% of its portfolio. Potrero Capital Research is also relatively very bullish on the stock, dishing out 3.38 percent of its 13F equity portfolio to NEWR.

Consequently, specific money managers have jumped into New Relic Inc (NYSE:NEWR) headfirst. Tiger Global Management, managed by Chase Coleman, initiated the most outsized position in New Relic Inc (NYSE:NEWR). Tiger Global Management had $179.4 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also made a $31 million investment in the stock during the quarter. The following funds were also among the new NEWR investors: Constantinos J. Christofilis’s Archon Capital Management, Charles Davidson and Joseph Jacobs’s Wexford Capital, and Josh Goldberg’s G2 Investment Partners Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as New Relic Inc (NYSE:NEWR) but similarly valued. We will take a look at Two Harbors Investment Corp (NYSE:TWO), LHC Group, Inc. (NASDAQ:LHCG), Chegg Inc (NYSE:CHGG), and LivaNova PLC (NASDAQ:LIVN). This group of stocks’ market valuations are similar to NEWR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TWO 13 64248 0
LHCG 27 112140 1
CHGG 32 337398 6
LIVN 13 153754 -3
Average 21.25 166885 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $519 million in NEWR’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand Two Harbors Investment Corp (NYSE:TWO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks New Relic Inc (NYSE:NEWR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on NEWR as the stock returned 10.7% during the first two months of Q4 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.

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