We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards DocuSign, Inc. (NASDAQ:DOCU).
DocuSign, Inc. (NASDAQ:DOCU) shareholders have witnessed an increase in enthusiasm from smart money recently. Our calculations also showed that DOCU isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the recent hedge fund action encompassing DocuSign, Inc. (NASDAQ:DOCU).
What does smart money think about DocuSign, Inc. (NASDAQ:DOCU)?
At Q4’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DOCU over the last 18 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, D E Shaw was the largest shareholder of DocuSign, Inc. (NASDAQ:DOCU), with a stake worth $360.8 million reported as of the end of September. Trailing D E Shaw was Matrix Capital Management, which amassed a stake valued at $129 million. Jericho Capital Asset Management, Two Sigma Advisors, and Citadel Investment Group 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 Cota Capital allocated the biggest weight to DocuSign, Inc. (NASDAQ:DOCU), around 12.4% of its 13F portfolio. Cowbird Capital is also relatively very bullish on the stock, dishing out 8.19 percent of its 13F equity portfolio to DOCU.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Cota Capital, managed by Bobby Yazdani and Babak Poushanchi, established the most valuable position in DocuSign, Inc. (NASDAQ:DOCU). Cota Capital had $22.4 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also made a $13.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Scott Coulter’s Cowbird Capital, Jinghua Yan’s TwinBeech Capital, and John Brandmeyer’s Cognios Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as DocuSign, Inc. (NASDAQ:DOCU) but similarly valued. These stocks are Expeditors International of Washington (NASDAQ:EXPD), Suzano S.A. (NYSE:SUZ), The AES Corporation (NYSE:AES), and BanColombia S.A. (NYSE:CIB). This group of stocks’ market values are similar to DOCU’s market value.
|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 $310 million. That figure was $906 million in DOCU’s case. Expeditors International of Washington (NASDAQ:EXPD) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks DocuSign, Inc. (NASDAQ:DOCU) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on DOCU as the stock returned -2.4% so far in Q1 (through March 16th) 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.