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Were Hedge Funds Right About Twilio Inc. (TWLO)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Twilio Inc. (NYSE:TWLO) based on that data and determine whether they were really smart about the stock.

Twilio Inc. (NYSE:TWLO) was in 52 hedge funds’ portfolios at the end of March. TWLO investors should pay attention to a decrease in support from the world’s most elite money managers lately. There were 60 hedge funds in our database with TWLO positions at the end of the previous quarter. Our calculations also showed that TWLO 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.

At the moment there are a multitude of signals market participants have at their disposal to analyze publicly traded companies. A couple of the most innovative signals are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat their index-focused peers by a significant margin (see the details here).

Colin Moran Abdiel Capital

Colin Moran of Abdiel Capital Advisors

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. Now let’s review the new hedge fund action encompassing Twilio Inc. (NYSE:TWLO).

How have hedgies been trading Twilio Inc. (NYSE:TWLO)?

At Q1’s end, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 59 hedge funds with a bullish position in TWLO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, SCGE Management was the largest shareholder of Twilio Inc. (NYSE:TWLO), with a stake worth $249.1 million reported as of the end of September. Trailing SCGE Management was Foxhaven Asset Management, which amassed a stake valued at $242.9 million. Generation Investment Management, Tiger Global Management LLC, and Whale Rock Capital Management 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 Foxhaven Asset Management allocated the biggest weight to Twilio Inc. (NYSE:TWLO), around 13.01% of its 13F portfolio. Toronado Partners is also relatively very bullish on the stock, earmarking 10.32 percent of its 13F equity portfolio to TWLO.

Seeing as Twilio Inc. (NYSE:TWLO) has faced a decline in interest from the smart money, it’s safe to say that there was a specific group of fund managers that slashed their positions entirely by the end of the first quarter. At the top of the heap, Eashwar Krishnan’s Tybourne Capital Management dropped the biggest investment of all the hedgies tracked by Insider Monkey, worth about $323.3 million in stock, and David Gallo’s Valinor Management LLC was right behind this move, as the fund dropped about $55.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 8 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Twilio Inc. (NYSE:TWLO) but similarly valued. We will take a look at TransUnion (NYSE:TRU), Evergy, Inc. (NYSE:EVRG), D.R. Horton, Inc. (NYSE:DHI), and Western Digital Corporation (NASDAQ:WDC). This group of stocks’ market valuations are similar to TWLO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRU 44 895453 7
EVRG 30 757141 5
DHI 65 1265515 14
WDC 45 560147 -4
Average 46 869564 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $870 million. That figure was $1550 million in TWLO’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Evergy, Inc. (NYSE:EVRG) is the least popular one with only 30 bullish hedge fund positions. Twilio Inc. (NYSE:TWLO) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on TWLO as the stock returned 145.2% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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