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Were Hedge Funds Right About Fleeing From CommVault Systems, Inc. (CVLT)?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 4 percentage points during the first 9 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in CommVault Systems, Inc. (NASDAQ:CVLT).

CommVault Systems, Inc. (NASDAQ:CVLT) has seen a decrease in support from the world’s most elite money managers recently. Our calculations also showed that CVLT isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Today there are numerous tools stock traders can use to grade stocks. A duo of the most under-the-radar tools are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can outpace the market by a very impressive amount (see the details here).

CVLT_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. We’re going to check out the fresh hedge fund action surrounding CommVault Systems, Inc. (NASDAQ:CVLT).

What have hedge funds been doing with CommVault Systems, Inc. (NASDAQ:CVLT)?

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -34% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CVLT over the last 16 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.

Michael Hintze CQS Capital

More specifically, Renaissance Technologies was the largest shareholder of CommVault Systems, Inc. (NASDAQ:CVLT), with a stake worth $92.6 million reported as of the end of March. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $47.8 million. AQR Capital Management, Millennium Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Since CommVault Systems, Inc. (NASDAQ:CVLT) has witnessed falling interest from hedge fund managers, it’s easy to see that there exists a select few hedgies that slashed their positions entirely in the second quarter. It’s worth mentioning that Paul Singer’s Elliott Management said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $58 million in stock. Vikas Lunia’s fund, Lunia Capital, also sold off its stock, about $7.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 10 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CommVault Systems, Inc. (NASDAQ:CVLT) but similarly valued. These stocks are Granite Real Estate Investment Trust (NYSE:GRP), Innospec Inc. (NASDAQ:IOSP), Carpenter Technology Corporation (NYSE:CRS), and Yext, Inc. (NYSE:YEXT). All of these stocks’ market caps match CVLT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GRP 11 114835 -2
IOSP 13 72763 -1
CRS 12 61839 -1
YEXT 21 186091 -2
Average 14.25 108882 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $277 million in CVLT’s case. Yext, Inc. (NYSE:YEXT) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 11 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. 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 CVLT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CVLT were disappointed as the stock returned -9.9% 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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