Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Open Text Corporation (NASDAQ:OTEX) was in 16 hedge funds' portfolios at the end of June. OTEX has experienced a decrease in activity from the world's largest hedge funds recently. There were 22 hedge funds in our database with OTEX positions at the end of the previous quarter. Our calculations also showed that OTEX isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to check out the fresh hedge fund action regarding Open Text Corporation (NASDAQ:OTEX).
Hedge fund activity in Open Text Corporation (NASDAQ:OTEX)
At Q2's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OTEX over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Blue Harbour Group was the largest shareholder of Open Text Corporation (NASDAQ:OTEX), with a stake worth $262.7 million reported as of the end of March. Trailing Blue Harbour Group was Praesidium Investment Management Company, which amassed a stake valued at $149.6 million. Arrowstreet Capital, GLG Partners, and Sunriver Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Open Text Corporation (NASDAQ:OTEX) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedgies who were dropping their positions entirely last quarter. Interestingly, Cliff Asness's AQR Capital Management sold off the biggest stake of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $40 million in stock. Jeffrey Talpins's fund, Element Capital Management, also dropped its stock, about $3.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 6 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Open Text Corporation (NASDAQ:OTEX) but similarly valued. We will take a look at SVB Financial Group (NASDAQ:SIVB), Burlington Stores Inc (NYSE:BURL), Domino's Pizza, Inc. (NYSE:DPZ), and The AES Corporation (NYSE:AES). All of these stocks' market caps match OTEX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SIVB,26,484420,-3 BURL,31,1536898,0 DPZ,27,1763092,-5 AES,27,503849,3 Average,27.75,1072065,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1072 million. That figure was $779 million in OTEX's case. Burlington Stores Inc (NYSE:BURL) is the most popular stock in this table. On the other hand SVB Financial Group (NASDAQ:SIVB) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Open Text Corporation (NASDAQ:OTEX) is even less popular than SIVB. Hedge funds dodged a bullet by taking a bearish stance towards OTEX. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately OTEX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); OTEX investors were disappointed as the stock returned -0.5% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.