Did Hedge Funds Make The Right Call On Mimecast Limited (MIME) ?
Debasis Saha
6 min read
How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Mimecast Limited (NASDAQ:MIME) and determine whether hedge funds had an edge regarding this stock.
Is Mimecast Limited (NASDAQ:MIME) a buy here? The best stock pickers were getting more bullish. The number of bullish hedge fund bets improved by 8 in recent months. Our calculations also showed that MIME 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.
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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Mark Kingdon - Kingdon Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we're going to check out the fresh hedge fund action regarding Mimecast Limited (NASDAQ:MIME).
How are hedge funds trading Mimecast Limited (NASDAQ:MIME)?
Heading into the second quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in MIME over the last 18 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.
Is MIME A Good Stock To Buy?
Among these funds, Whale Rock Capital Management held the most valuable stake in Mimecast Limited (NASDAQ:MIME), which was worth $124.9 million at the end of the third quarter. On the second spot was Abdiel Capital Advisors which amassed $83.5 million worth of shares. Point72 Asset Management, Hunt Lane Capital, and SQN Investors 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 Run Capital allocated the biggest weight to Mimecast Limited (NASDAQ:MIME), around 9.31% of its 13F portfolio. Hunt Lane Capital is also relatively very bullish on the stock, earmarking 9.1 percent of its 13F equity portfolio to MIME.
As one would reasonably expect, some big names have jumped into Mimecast Limited (NASDAQ:MIME) headfirst. Light Street Capital, managed by Glen Kacher, initiated the largest position in Mimecast Limited (NASDAQ:MIME). Light Street Capital had $14.7 million invested in the company at the end of the quarter. Mark Kingdon's Kingdon Capital also initiated a $14 million position during the quarter. The following funds were also among the new MIME investors: Michael Kahan and Jeremy Kahan's North Peak Capital, Thomas Ellis and Todd Hammer's North Run Capital, and Brian Bares's Bares Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Mimecast Limited (NASDAQ:MIME) but similarly valued. We will take a look at Stamps.com Inc. (NASDAQ:STMP), American National Insurance Company (NASDAQ:ANAT), Laureate Education, Inc. (NASDAQ:LAUR), and Macquarie Infrastructure Corporation (NYSE:MIC). This group of stocks' market caps are similar to MIME's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STMP,29,465670,9 ANAT,14,48453,-2 LAUR,25,197669,-9 MIC,30,251515,-4 Average,24.5,240827,-1.5 [/table]
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $517 million in MIME's case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand American National Insurance Company (NASDAQ:ANAT) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Mimecast Limited (NASDAQ:MIME) 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 gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately MIME wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MIME were disappointed as the stock returned 18% during the second quarter 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 most of these stocks already outperformed the market in 2020.
