Was The Smart Money Right About Crowding Into Elastic N.V. (ESTC)?

Reymerlyn Martin
·6 min read

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Elastic N.V. (NYSE:ESTC) in this article.

Elastic N.V. (NYSE:ESTC) has experienced an increase in hedge fund interest recently. Elastic N.V. (NYSE:ESTC) was in 43 hedge funds' portfolios at the end of June. The all time high for this statistics is 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ESTC isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's view the recent hedge fund action regarding Elastic N.V. (NYSE:ESTC).

What does smart money think about Elastic N.V. (NYSE:ESTC)?

At the end of June, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in ESTC a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is ESTC A Good Stock To Buy?
Is ESTC A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the largest position in Elastic N.V. (NYSE:ESTC). Sylebra Capital Management has a $537 million position in the stock, comprising 16.7% of its 13F portfolio. Coming in second is Tiger Global Management LLC, managed by Chase Coleman, which holds a $370.7 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Daniel Sundheim's D1 Capital Partners, Panayotis Takis Sparaggis's Alkeon Capital Management and Seth Wunder's Black-and-White Capital. In terms of the portfolio weights assigned to each position Marcho Partners allocated the biggest weight to Elastic N.V. (NYSE:ESTC), around 20.12% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, setting aside 16.73 percent of its 13F equity portfolio to ESTC.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. D1 Capital Partners, managed by Daniel Sundheim, initiated the largest position in Elastic N.V. (NYSE:ESTC). D1 Capital Partners had $64.4 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $25.7 million investment in the stock during the quarter. The following funds were also among the new ESTC investors: Alok Agrawal's Bloom Tree Partners, Ken Griffin's Citadel Investment Group, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Elastic N.V. (NYSE:ESTC) but similarly valued. These stocks are Tenaris S.A. (NYSE:TS), Weibo Corp (NASDAQ:WB), Host Hotels and Resorts Inc (NYSE:HST), A. O. Smith Corporation (NYSE:AOS), Juniper Networks, Inc. (NYSE:JNPR), ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), and Perrigo Company plc (NYSE:PRGO). This group of stocks' market values resemble ESTC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TS,12,204534,-3 WB,14,92970,4 HST,29,221044,5 AOS,35,410037,10 JNPR,33,558592,-1 ACAD,44,2839807,16 PRGO,33,446972,5 Average,28.6,681994,5.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $682 million. That figure was $1386 million in ESTC's case. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 12 bullish hedge fund positions. Elastic N.V. (NYSE:ESTC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ESTC is 88.4. 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 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on ESTC as the stock returned 18.2% since the end of Q2 (through 10/23) 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.

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