Were Hedge Funds Right About Piling Into salesforce.com, inc. (CRM)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded salesforce.com, inc. (NYSE:CRM) and determine whether the smart money was really smart about this stock.

salesforce.com, inc. (NYSE:CRM) was in 117 hedge funds’ portfolios at the end of the first quarter of 2020. CRM investors should be aware of an increase in support from the world’s most elite money managers recently. There were 112 hedge funds in our database with CRM positions at the end of the previous quarter. Our calculations also showed that CRM ranked 12th 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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.

Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the recent hedge fund action surrounding salesforce.com, inc. (NYSE:CRM).

How have hedgies been trading salesforce.com, inc. (NYSE:CRM)?

At the end of the first quarter, a total of 117 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the fourth quarter of 2019. On the other hand, there were a total of 93 hedge funds with a bullish position in CRM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in salesforce.com, inc. (NYSE:CRM), which was worth $1565.6 million at the end of the third quarter. On the second spot was Viking Global which amassed $504.9 million worth of shares. Altimeter Capital Management, Matrix Capital Management, and Melvin 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 Altimeter Capital Management allocated the biggest weight to salesforce.com, inc. (NYSE:CRM), around 13.63% of its 13F portfolio. HMI Capital is also relatively very bullish on the stock, dishing out 12.75 percent of its 13F equity portfolio to CRM.

As one would reasonably expect, specific money managers have been driving this bullishness. GQG Partners, managed by Rajiv Jain, assembled the largest position in salesforce.com, inc. (NYSE:CRM). GQG Partners had $196.6 million invested in the company at the end of the quarter. William Duhamel’s Route One Investment Company also initiated a $179.8 million position during the quarter. The other funds with brand new CRM positions are Lei Zhang’s Hillhouse Capital Management, Robert Pitts’s Steadfast Capital Management, and Keith Meister’s Corvex Capital.

Let’s go over hedge fund activity in other stocks similar to salesforce.com, inc. (NYSE:CRM). We will take a look at Bristol Myers Squibb Company (NYSE:BMY), Costco Wholesale Corporation (NASDAQ:COST), McDonald’s Corporation (NYSE:MCD), and Medtronic plc (NYSE:MDT). All of these stocks’ market caps are closest to CRM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMY 126 6887128 4
COST 68 4351741 -2
MCD 66 953580 9
MDT 59 1839749 -7
Average 79.75 3508050 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 79.75 hedge funds with bullish positions and the average amount invested in these stocks was $3508 million. That figure was $7123 million in CRM’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand Medtronic plc (NYSE:MDT) is the least popular one with only 59 bullish hedge fund positions. salesforce.com, inc. (NYSE:CRM) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on CRM as the stock returned 30.8% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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