Were Hedge Funds Right About Crowding Into Bill.com Holdings, Inc. (BILL)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Bill.com Holdings, Inc. (NYSE:BILL) changed recently.

Bill.com Holdings, Inc. (NYSE:BILL) was in 52 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. BILL has experienced an increase in hedge fund sentiment in recent months. There were 22 hedge funds in our database with BILL holdings at the end of March. Our calculations also showed that BILL isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a peek at the key hedge fund action regarding Bill.com Holdings, Inc. (NYSE:BILL).

How are hedge funds trading Bill.com Holdings, Inc. (NYSE:BILL)?

At the end of the second quarter, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 136% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards BILL over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Abdiel Capital Advisors was the largest shareholder of Bill.com Holdings, Inc. (NYSE:BILL), with a stake worth $260 million reported as of the end of September. Trailing Abdiel Capital Advisors was Napier Park Global Capital, which amassed a stake valued at $248.8 million. Whale Rock Capital Management, Echo Street Capital Management, and Engle Capital 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 Napier Park Global Capital allocated the biggest weight to Bill.com Holdings, Inc. (NYSE:BILL), around 99.39% of its 13F portfolio. 3G Capital is also relatively very bullish on the stock, designating 18.22 percent of its 13F equity portfolio to BILL.

Consequently, specific money managers were leading the bulls’ herd. Castle Hook Partners, managed by Josh Donfeld and David Rogers, assembled the largest position in Bill.com Holdings, Inc. (NYSE:BILL). Castle Hook Partners had $39.1 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $35.9 million investment in the stock during the quarter. The other funds with brand new BILL positions are Gabriel Plotkin’s Melvin Capital Management, Neal Nathani and Darren Dinneen’s Totem Point Management, and Anand Parekh’s Alyeska Investment Group.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Bill.com Holdings, Inc. (NYSE:BILL) but similarly valued. These stocks are Knight-Swift Transportation Holdings Inc. (NYSE:KNX), Bright Horizons Family Solutions Inc (NYSE:BFAM), Huntington Ingalls Industries Inc (NYSE:HII), Universal Display Corporation (NASDAQ:OLED), XPO Logistics Inc (NYSE:XPO), News Corp (NASDAQ:NWS), and The New York Times Company (NYSE:NYT). All of these stocks’ market caps match BILL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KNX 39 466487 7
BFAM 30 217350 3
HII 30 272167 9
OLED 25 216895 1
XPO 40 2294370 4
NWS 16 32230 3
NYT 42 1853275 9
Average 31.7 764682 5.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $765 million. That figure was $1197 million in BILL’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Bill.com Holdings, Inc. (NYSE:BILL) is more popular among hedge funds. Our overall hedge fund sentiment score for BILL is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on BILL as the stock returned 21.1% since the end of June (through 10/23) 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.

Follow Bill.com Holdings Inc. (NYSE:BILL)

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