Is Twilio Inc (TWLO) Worthy of Your Portfolio?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Hedge fund interest in Twilio Inc (NYSE:TWLO) shares was flat at the end of last quarter, with 9 hedge funds bullish on the stock. 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 Empresa Nacional de Electricidad S.A. (NYSE:EOCC), Aqua America Inc (NYSE:WTR), and Arris Group, Inc. (NASDAQ:ARRS) 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.

What does the smart money think about Twilio Inc(NYSE:TWLO)?

Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TWLO over the last 5 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Coatue Management, led by Philippe Laffont, holds the largest position in Twilio Inc(NYSE:TWLO). Coatue Management has a $33.8 million position in the stock. Coming in second is Ken Griffin of Citadel Investment Group, with a $22.1 million call position. Some other professional money managers with similar optimism consist of Richard Driehaus’ Driehaus Capital, and Drew Cupps’s Cupps Capital 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.

Due to the fact that Twilio Inc(NYSE:TWLO) has gone through falling interest from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their positions entirely in the third quarter. It’s worth mentioning that David Gallo’s Valinor Management LLC cut the largest stake of all the investors followed by Insider Monkey, worth an estimated $7.3 million in stock, and Alex Sacerdote’s Whale Rock Capital Management was right behind this move, as the fund sold off about $3.7 million worth of shares.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Twilio Inc(NYSE:TWLO) but similarly valued. These stocks are Empresa Nacional de Electricidad S.A. (NYSE:EOCC), Aqua America Inc (NYSE:WTR), Arris Group, Inc. (NASDAQ:ARRS), and Senior Housing Properties Trust (NYSE:SNH). All of these stocks’ market caps are closest to TWLO’s market cap.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $70 million in TWLO’s case. Arris Group, Inc. (NASDAQ:ARRS) is the most popular stock in this table. On the other hand Empresa Nacional de Electricidad S.A. (NYSE:EOCC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Twilio Inc(NYSE:TWLO) is even less popular than EOCC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None