Were Hedge Funds Right About Splunk (SPLK)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Splunk Inc (NASDAQ:SPLK) to find out whether there were any major changes in hedge funds’ views.

Splunk Inc (NASDAQ:SPLK) has seen an increase in hedge fund sentiment in recent months. Splunk Inc (NASDAQ:SPLK) was in 47 hedge funds’ portfolios at the end of December. The all time high for this statistic is 49. There were 44 hedge funds in our database with SPLK positions at the end of the third quarter. Our calculations also showed that SPLK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In today’s marketplace there are many indicators shareholders employ to grade their holdings. Two of the best indicators are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the top investment managers can outperform the broader indices by a superb margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey we leave no stone unturned when looking for 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 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing Splunk Inc (NASDAQ:SPLK).

Do Hedge Funds Think SPLK Is A Good Stock To Buy Now?

At Q4’s end, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPLK over the last 22 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.

Among these funds, ARK Investment Management held the most valuable stake in Splunk Inc (NASDAQ:SPLK), which was worth $343.1 million at the end of the fourth quarter. On the second spot was Iridian Asset Management which amassed $99.5 million worth of shares. North Peak Capital, Matrix Capital Management, and Light Street 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 North Peak Capital allocated the biggest weight to Splunk Inc (NASDAQ:SPLK), around 16.98% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, dishing out 7.08 percent of its 13F equity portfolio to SPLK.

Now, some big names were leading the bulls’ herd. Matrix Capital Management, managed by David Goel and Paul Ferri, created the most valuable position in Splunk Inc (NASDAQ:SPLK). Matrix Capital Management had $51 million invested in the company at the end of the quarter. Glen Kacher’s Light Street Capital also initiated a $44.7 million position during the quarter. The other funds with brand new SPLK positions are Stuart J. Zimmer’s Zimmer Partners, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Canhui Ou’s One01 Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Splunk Inc (NASDAQ:SPLK) but similarly valued. These stocks are NatWest Group plc (NYSE:NWG), Nutrien Ltd. (NYSE:NTR), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), Mettler-Toledo International Inc. (NYSE:MTD), Sirius XM Holdings Inc (NASDAQ:SIRI), AutoZone, Inc. (NYSE:AZO), and Welltower Inc. (NYSE:WELL). All of these stocks’ market caps are closest to SPLK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWG 3 759 1
NTR 25 754698 -1
WLTW 58 3245691 7
MTD 29 850200 -1
SIRI 32 670253 -5
AZO 44 1445833 -9
WELL 26 538410 1
Average 31 1072263 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1072 million. That figure was $1036 million in SPLK’s case. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is the most popular stock in this table. On the other hand NatWest Group plc (NYSE:NWG) is the least popular one with only 3 bullish hedge fund positions. Splunk Inc (NASDAQ:SPLK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SPLK is 76.8. 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. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately SPLK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SPLK were disappointed as the stock returned -25.6% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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