Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
CommVault Systems, Inc. (NASDAQ:CVLT) has experienced a decrease in support from the world’s most elite money managers in recent months. CVLT was in 22 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with CVLT positions at the end of the previous quarter. Our calculations also showed that CVLT isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a look at the recent hedge fund action encompassing CommVault Systems, Inc. (NASDAQ:CVLT).
How are hedge funds trading CommVault Systems, Inc. (NASDAQ:CVLT)?
Heading into the fourth quarter of 2018, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVLT over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Elliott Management was the largest shareholder of CommVault Systems, Inc. (NASDAQ:CVLT), with a stake worth $147 million reported as of the end of September. Trailing Elliott Management was Renaissance Technologies, which amassed a stake valued at $113.5 million. D E Shaw, Lunia Capital, and Garelick Capital Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Since CommVault Systems, Inc. (NASDAQ:CVLT) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that slashed their positions entirely in the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest stake of the 700 funds watched by Insider Monkey, valued at an estimated $19.3 million in stock. Charles Davidson and Joseph Jacobs’s fund, Wexford Capital, also cut its stock, about $2.5 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to CommVault Systems, Inc. (NASDAQ:CVLT). These stocks are American Equity Investment Life Holding Company (NYSE:AEL), KLX Inc (NASDAQ:KLXI), National Health Investors Inc (NYSE:NHI), and Darling Ingredients Inc. (NYSE:DAR). This group of stocks’ market caps match CVLT’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $257 million. That figure was $413 million in CVLT’s case. KLX Inc (NASDAQ:KLXI) is the most popular stock in this table. On the other hand National Health Investors Inc (NYSE:NHI) is the least popular one with only 10 bullish hedge fund positions. CommVault Systems, Inc. (NASDAQ:CVLT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard KLXI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.