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Were Hedge Funds Right About Piling Into ServiceNow Inc (NOW)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded ServiceNow Inc (NYSE:NOW) and determine whether the smart money was really smart about this stock.

ServiceNow Inc (NYSE:NOW) was in 85 hedge funds’ portfolios at the end of March. NOW investors should pay attention to an increase in support from the world’s most elite money managers of late. There were 75 hedge funds in our database with NOW positions at the end of the previous quarter. Our calculations also showed that NOW isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

To most market participants, hedge funds are assumed to be worthless, old investment tools of years past. While there are over 8000 funds in operation at the moment, Our researchers look at the top tier of this group, approximately 850 funds. These hedge fund managers orchestrate the majority of the hedge fund industry’s total capital, and by watching their top investments, Insider Monkey has uncovered numerous investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Rajiv Jain of GQG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing ServiceNow Inc (NYSE:NOW).

What have hedge funds been doing with ServiceNow Inc (NYSE:NOW)?

At Q1’s end, a total of 85 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. By comparison, 65 hedge funds held shares or bullish call options in NOW a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NOW A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Lone Pine Capital, managed by Stephen Mandel (founder), holds the largest position in ServiceNow Inc (NYSE:NOW). Lone Pine Capital has a $392.2 million position in the stock, comprising 2.3% of its 13F portfolio. On Lone Pine Capital’s heels is GQG Partners, led by Rajiv Jain, holding a $363.1 million position; 2.5% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish encompass Eashwar Krishnan’s Tybourne Capital Management, Gabriel Plotkin’s Melvin Capital Management and Alex Sacerdote’s Whale Rock Capital Management. In terms of the portfolio weights assigned to each position 3G Capital allocated the biggest weight to ServiceNow Inc (NYSE:NOW), around 16.62% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, earmarking 16.57 percent of its 13F equity portfolio to NOW.

As one would reasonably expect, specific money managers were leading the bulls’ herd. GQG Partners, managed by Rajiv Jain, initiated the most outsized position in ServiceNow Inc (NYSE:NOW). GQG Partners had $363.1 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $125.2 million investment in the stock during the quarter. The other funds with brand new NOW positions are Jim Simons (founder)’s Renaissance Technologies, Amish Mehta’s SQN Investors, and Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ServiceNow Inc (NYSE:NOW) but similarly valued. We will take a look at Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Equinix Inc (NASDAQ:EQIX), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Goldman Sachs Group, Inc. (NYSE:GS). This group of stocks’ market caps resemble NOW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REGN 42 838224 5
EQIX 55 1950326 12
AMD 62 2087092 9
GS 74 3084948 -1
Average 58.25 1990148 6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.25 hedge funds with bullish positions and the average amount invested in these stocks was $1990 million. That figure was $3986 million in NOW’s case. Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is the least popular one with only 42 bullish hedge fund positions. Compared to these stocks ServiceNow Inc (NYSE:NOW) is more popular among hedge funds. 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 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on NOW as the stock returned 40.1% so far in Q2 (through June 25th) 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.

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