Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 7.6% during the last 12 months ending November 21, 2016. Most investors don’t notice that less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 mid-cap stocks among the best performing hedge funds had an average return of 18% during the same period. Hedge funds had bad stock picks like everyone else. We are sure you have read about their worst picks, like Valeant, in the media over the past year. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Arista Networks Inc (NYSE:ANET) .
Hedge fund interest in Arista Networks Inc (NYSE:ANET) shares was flat during the third quarter. This is usually a negative indicator. 17 hedge funds that we track owned the stock on September 30, same as on June 30. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Dun & Bradstreet Corp (NYSE:DNB), Healthcare Trust Of America Inc (NYSE:HTA), and First American Financial Corp (NYSE:FAF) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
How are hedge funds trading Arista Networks Inc (NYSE:ANET)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in ANET at the beginning of this year, with hedge fund ownership of the stock being volatile in the first two quarters of this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Christopher Lord’s Criterion Capital has the biggest position in Arista Networks Inc (NYSE:ANET), worth close to $101.8 million, accounting for 4.1% of its total 13F portfolio. Sitting at the No. 2 spot is McKinley Capital Management, led by Robert B. Gillam, which holds a $33.6 million position; 1.2% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions encompass Jim Simons’ Renaissance Technologies, Brian Ashford-Russell and Tim Woolley’s Polar Capital, and Israel Englander’s Millennium Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Seeing as Arista Networks Inc (NYSE:ANET) has weathered bearish sentiment from hedge fund managers, logic holds that there exists a select few hedgies who were dropping their entire stakes heading into Q4. Interestingly, Stephen Mandel’s Lone Pine Capital cut the largest investment of all the hedgies monitored by Insider Monkey, valued at about $120.5 million in stock, and Brian Taylor’s Pine River Capital Management was right behind this move, as the fund sold off about $6.2 million worth of shares.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Arista Networks Inc (NYSE:ANET) but similarly valued. These stocks are Dun & Bradstreet Corp (NYSE:DNB), Healthcare Trust Of America Inc (NYSE:HTA), First American Financial Corp (NYSE:FAF), and Jones Lang LaSalle Inc (NYSE:JLL). All of these stocks’ market caps are similar to ANET’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $382 million. That figure was $225 million in ANET’s case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand Healthcare Trust Of America Inc (NYSE:HTA) is the least popular one with only 9 bullish hedge fund positions. Arista Networks Inc (NYSE:ANET) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FAF might be a better candidate to consider taking a long position in.