We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Endava plc (NYSE:DAVA) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Endava plc (NYSE:DAVA) investors should be aware of an increase in activity from the world's largest hedge funds of late. DAVA was in 7 hedge funds' portfolios at the end of December. There were 5 hedge funds in our database with DAVA positions at the end of the previous quarter. Our calculations also showed that DAVA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26255" align="aligncenter" width="399"] Louis Navellier of Navellier & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a gander at the recent hedge fund action surrounding Endava plc (NYSE:DAVA).
How have hedgies been trading Endava plc (NYSE:DAVA)?
Heading into the first quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 40% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in DAVA a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Driehaus Capital, managed by Richard Driehaus, holds the biggest position in Endava plc (NYSE:DAVA). Driehaus Capital has a $41.8 million position in the stock, comprising 1.1% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $10.2 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 hold long positions include Israel Englander's Millennium Management, Ken Griffin's Citadel Investment Group and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Driehaus Capital allocated the biggest weight to Endava plc (NYSE:DAVA), around 1.11% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.08 percent of its 13F equity portfolio to DAVA.
As industrywide interest jumped, key hedge funds have jumped into Endava plc (NYSE:DAVA) headfirst. Weld Capital Management, managed by Minhua Zhang, established the largest position in Endava plc (NYSE:DAVA). Weld Capital Management had $0.4 million invested in the company at the end of the quarter. Louis Navellier's Navellier & Associates also initiated a $0.4 million position during the quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Endava plc (NYSE:DAVA) but similarly valued. We will take a look at Lattice Semiconductor Corporation (NASDAQ:LSCC), Vermilion Energy Inc (NYSE:VET), Wingstop Inc (NASDAQ:WING), and First Midwest Bancorp Inc (NASDAQ:FMBI). This group of stocks' market values resemble DAVA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LSCC,32,281293,5 VET,8,42512,-2 WING,24,242064,-1 FMBI,11,62652,-5 Average,18.75,157130,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $59 million in DAVA's case. Lattice Semiconductor Corporation (NASDAQ:LSCC) is the most popular stock in this table. On the other hand Vermilion Energy Inc (NYSE:VET) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Endava plc (NYSE:DAVA) is even less popular than VET. Hedge funds dodged a bullet by taking a bearish stance towards DAVA. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately DAVA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DAVA investors were disappointed as the stock returned -22.7% during the same time period 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 most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.