Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about ExlService Holdings, Inc. (NASDAQ:EXLS).
ExlService Holdings, Inc. (NASDAQ:EXLS) has experienced an increase in hedge fund interest lately. Our calculations also showed that EXLS 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_699750" align="aligncenter" width="473"] Gifford Combs of Dalton Investments[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the fresh hedge fund action encompassing ExlService Holdings, Inc. (NASDAQ:EXLS).
Hedge fund activity in ExlService Holdings, Inc. (NASDAQ:EXLS)
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EXLS over the last 17 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in ExlService Holdings, Inc. (NASDAQ:EXLS) was held by Renaissance Technologies, which reported holding $25 million worth of stock at the end of September. It was followed by Millennium Management with a $12 million position. Other investors bullish on the company included GLG Partners, Dalton Investments, and Marshall Wace. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to ExlService Holdings, Inc. (NASDAQ:EXLS), around 1.42% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.28 percent of its 13F equity portfolio to EXLS.
Now, specific money managers were leading the bulls' herd. Marshall Wace, managed by Paul Marshall and Ian Wace, created the most outsized position in ExlService Holdings, Inc. (NASDAQ:EXLS). Marshall Wace had $1.2 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $0.6 million investment in the stock during the quarter. The following funds were also among the new EXLS investors: Benjamin A. Smith's Laurion Capital Management and Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks similar to ExlService Holdings, Inc. (NASDAQ:EXLS). We will take a look at Tenet Healthcare Corp (NYSE:THC), Kinsale Capital Group, Inc. (NASDAQ:KNSL), Verra Mobility Corporation (NASDAQ:VRRM), and Commscope Holding Company Inc (NASDAQ:COMM). This group of stocks' market caps match EXLS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THC,25,742996,-5 KNSL,11,50852,2 VRRM,15,146636,-6 COMM,23,791413,3 Average,18.5,432974,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $433 million. That figure was $49 million in EXLS's case. Tenet Healthcare Corp (NYSE:THC) is the most popular stock in this table. On the other hand Kinsale Capital Group, Inc. (NASDAQ:KNSL) is the least popular one with only 11 bullish hedge fund positions. ExlService Holdings, Inc. (NASDAQ:EXLS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 EXLS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EXLS investors were disappointed as the stock returned 4.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.