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Did Hedge Funds Make The Right Call On Qualys Inc (QLYS) ?

Asma UL Husna

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Qualys Inc (NASDAQ:QLYS) based on that data and determine whether they were really smart about the stock.

Is Qualys Inc (NASDAQ:QLYS) a buy here? Investors who are in the know were in a bearish mood. The number of long hedge fund positions dropped by 12 in recent months. Our calculations also showed that QLYS 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.

Lee Ainslie MAVERICK CAPITAL
Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to review the latest hedge fund action surrounding Qualys Inc (NASDAQ:QLYS).

What does smart money think about Qualys Inc (NASDAQ:QLYS)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -41% from the fourth quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in QLYS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, GLG Partners held the most valuable stake in Qualys Inc (NASDAQ:QLYS), which was worth $21.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $18.5 million worth of shares. Portolan Capital Management, D E Shaw, and Two Sigma Advisors 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 Portolan Capital Management allocated the biggest weight to Qualys Inc (NASDAQ:QLYS), around 2.56% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, designating 0.54 percent of its 13F equity portfolio to QLYS.

Judging by the fact that Qualys Inc (NASDAQ:QLYS) has experienced bearish sentiment from hedge fund managers, it's easy to see that there were a few fund managers who were dropping their entire stakes in the first quarter. It's worth mentioning that Brad Dunkley and Blair Levinsky's Waratah Capital Advisors cut the largest position of the 750 funds followed by Insider Monkey, worth an estimated $5.8 million in stock, and Richard Walters II's Stony Point Capital was right behind this move, as the fund cut about $3.5 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 12 funds in the first quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Qualys Inc (NASDAQ:QLYS) but similarly valued. These stocks are SL Green Realty Corp (NYSE:SLG), CAE, Inc. (NYSE:CAE), QTS Realty Trust Inc (NYSE:QTS), and Stag Industrial Inc (NYSE:STAG). This group of stocks' market caps match QLYS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLG,23,192086,-4 CAE,20,79383,10 QTS,21,365837,-2 STAG,15,79203,-3 Average,19.75,179127,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $116 million in QLYS's case. SL Green Realty Corp (NYSE:SLG) is the most popular stock in this table. On the other hand Stag Industrial Inc (NYSE:STAG) is the least popular one with only 15 bullish hedge fund positions. Qualys Inc (NASDAQ:QLYS) is not the least popular stock in this group but hedge fund interest is still below average. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on QLYS, though not to the same extent, as the stock returned 30.5% since Q1 and outperformed the market.

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Disclosure: None. This article was originally published at Insider Monkey.

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