Where Do Hedge Funds Stand On Cloudflare, Inc. (NET)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Cloudflare, Inc. (NYSE:NET).

Cloudflare, Inc. (NYSE:NET) has experienced an increase in hedge fund interest in recent months. Cloudflare, Inc. (NYSE:NET) was in 44 hedge funds’ portfolios at the end of September. The all time high for this statistic is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NET isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

If you’d ask most investors, hedge funds are viewed as worthless, old financial vehicles of years past. While there are over 8000 funds in operation today, We hone in on the leaders of this club, approximately 850 funds. These money managers direct bulk of the hedge fund industry’s total asset base, and by paying attention to their unrivaled equity investments, Insider Monkey has come up with numerous investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .


Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind we’re going to review the fresh hedge fund action encompassing Cloudflare, Inc. (NYSE:NET).

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

At third quarter’s end, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NET over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Holocene Advisors held the most valuable stake in Cloudflare, Inc. (NYSE:NET), which was worth $129.2 million at the end of the third quarter. On the second spot was Polar Capital which amassed $70.6 million worth of shares. Citadel Investment Group, Citadel Investment Group, and Cota 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 Cota Capital allocated the biggest weight to Cloudflare, Inc. (NYSE:NET), around 8.24% of its 13F portfolio. Hidden Lake Asset Management is also relatively very bullish on the stock, setting aside 4.46 percent of its 13F equity portfolio to NET.

Now, key hedge funds were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, initiated the most valuable position in Cloudflare, Inc. (NYSE:NET). Holocene Advisors had $129.2 million invested in the company at the end of the quarter. Bobby Yazdani and Babak Poushanchi’s Cota Capital also made a $28.2 million investment in the stock during the quarter. The following funds were also among the new NET investors: David Goel and Paul Ferri’s Matrix Capital Management, Pasco Alfaro and Richard Turnure’s Miura Global Management, and Stanley Druckenmiller’s Duquesne Capital.

Let’s go over hedge fund activity in other stocks similar to Cloudflare, Inc. (NYSE:NET). We will take a look at Cincinnati Financial Corporation (NASDAQ:CINF), KB Financial Group, Inc. (NYSE:KB), Boston Properties, Inc. (NYSE:BXP), ABIOMED, Inc. (NASDAQ:ABMD), Liberty Global plc (NASDAQ:LBTYA), VICI Properties Inc. (NYSE:VICI), and Jack Henry & Associates, Inc. (NASDAQ:JKHY). All of these stocks’ market caps are closest to NET’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CINF 19 735839 -1
KB 6 36629 0
BXP 26 420101 -10
ABMD 25 878643 -6
LBTYA 35 1002893 6
VICI 40 1453632 -11
JKHY 30 351987 -1
Average 25.9 697103 -3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.9 hedge funds with bullish positions and the average amount invested in these stocks was $697 million. That figure was $542 million in NET’s case. VICI Properties Inc. (NYSE:VICI) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Cloudflare, Inc. (NYSE:NET) is more popular among hedge funds. Our overall hedge fund sentiment score for NET is 90. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on NET as the stock returned 103.5% since the end of September (through 12/8) 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.

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