We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Pluralsight, Inc. (NASDAQ:PS).
Hedge fund interest in Pluralsight, Inc. (NASDAQ:PS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Jack in the Box Inc. (NASDAQ:JACK), Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB), and MakeMyTrip Limited (NASDAQ:MMYT) to gather more data points. Our calculations also showed that PS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_25717" align="aligncenter" width="440"]
Steven Cohen of Point72 Asset Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the new hedge fund action regarding Pluralsight, Inc. (NASDAQ:PS).
What does smart money think about Pluralsight, Inc. (NASDAQ:PS)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PS over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Steve Cohen's Point72 Asset Management has the biggest position in Pluralsight, Inc. (NASDAQ:PS), worth close to $28.8 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by David E. Shaw, holding a $18.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include Christopher Lyle's SCGE Management, Anand Parekh's Alyeska Investment Group and Mark Coe's Intrinsic Edge Capital. In terms of the portfolio weights assigned to each position North Run Capital allocated the biggest weight to Pluralsight, Inc. (NASDAQ:PS), around 7.63% of its 13F portfolio. EastBay Asset Management is also relatively very bullish on the stock, earmarking 5.81 percent of its 13F equity portfolio to PS.
Due to the fact that Pluralsight, Inc. (NASDAQ:PS) has witnessed bearish sentiment from the smart money, we can see that there were a few fund managers who were dropping their full holdings in the third quarter. It's worth mentioning that Mark N. Diker's Diker Management dumped the largest position of the "upper crust" of funds monitored by Insider Monkey, comprising about $21.3 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $19.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Pluralsight, Inc. (NASDAQ:PS). These stocks are Jack in the Box Inc. (NASDAQ:JACK), Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB), MakeMyTrip Limited (NASDAQ:MMYT), and WSFS Financial Corporation (NASDAQ:WSFS). This group of stocks' market caps are closest to PS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JACK,29,478938,-4 OMAB,7,48367,0 MMYT,8,62829,-3 WSFS,10,168789,-5 Average,13.5,189731,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $140 million in PS's case. Jack in the Box Inc. (NASDAQ:JACK) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) is the least popular one with only 7 bullish hedge fund positions. Pluralsight, Inc. (NASDAQ:PS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PS were disappointed as the stock returned 1.2% during the fourth quarter (through the end of November) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.