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Were Hedge Funds Right About Ditching Instructure, Inc. (INST)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Instructure, Inc. (NYSE:INST) a great investment today? Investors who are in the know are turning less bullish. The number of long hedge fund positions were cut by 3 lately. Our calculations also showed that INST isn’t among the 30 most popular stocks among hedge funds (see the video below). INST was in 21 hedge funds’ portfolios at the end of the second quarter of 2019. There were 24 hedge funds in our database with INST holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

INST_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the key hedge fund action encompassing Instructure, Inc. (NYSE:INST).

What does smart money think about Instructure, Inc. (NYSE:INST)?

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards INST over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Kevin Oram Praesidium Investment Management

Among these funds, Nine Ten Partners held the most valuable stake in Instructure, Inc. (NYSE:INST), which was worth $122.5 million at the end of the second quarter. On the second spot was Foxhaven Asset Management which amassed $116.6 million worth of shares. Moreover, Praesidium Investment Management Company, Tensile Capital, and Inherent Group were also bullish on Instructure, Inc. (NYSE:INST), allocating a large percentage of their portfolios to this stock.

Because Instructure, Inc. (NYSE:INST) has faced bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of hedgies who sold off their positions entirely last quarter. Intriguingly, Eric Bannasch’s Cadian Capital cut the biggest position of the “upper crust” of funds watched by Insider Monkey, worth about $33.2 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $8.3 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Instructure, Inc. (NYSE:INST). We will take a look at Cooper Tire & Rubber Company (NYSE:CTB), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), Kaiser Aluminum Corp. (NASDAQ:KALU), and MSG Networks Inc (NYSE:MSGN). This group of stocks’ market values are similar to INST’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTB 15 165487 -2
BHLB 9 56410 -4
KALU 15 110047 -4
MSGN 23 270279 2
Average 15.5 150556 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $491 million in INST’s case. MSG Networks Inc (NYSE:MSGN) is the most popular stock in this table. On the other hand Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the least popular one with only 9 bullish hedge fund positions. Instructure, Inc. (NYSE:INST) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately INST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on INST were disappointed as the stock returned -8.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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