We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Computer Programs & Systems, Inc. (NASDAQ:CPSI) and determine whether hedge funds skillfully traded this stock.
Computer Programs & Systems, Inc. (NASDAQ:CPSI) shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. CPSI was in 12 hedge funds' portfolios at the end of March. There were 13 hedge funds in our database with CPSI positions at the end of the previous quarter. Our calculations also showed that CPSI 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.
[caption id="attachment_322510" align="aligncenter" width="399"] New York Stock Exchange[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to view the recent hedge fund action encompassing Computer Programs & Systems, Inc. (NASDAQ:CPSI).
How have hedgies been trading Computer Programs & Systems, Inc. (NASDAQ:CPSI)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CPSI over the last 18 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of Computer Programs & Systems, Inc. (NASDAQ:CPSI), with a stake worth $3.1 million reported as of the end of September. Trailing D E Shaw was AQR Capital Management, which amassed a stake valued at $2.9 million. Arrowstreet Capital, Marshall Wace LLP, and Citadel Investment Group 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 Fondren Management allocated the biggest weight to Computer Programs & Systems, Inc. (NASDAQ:CPSI), around 3.56% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.6 percent of its 13F equity portfolio to CPSI.
Because Computer Programs & Systems, Inc. (NASDAQ:CPSI) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few money managers that decided to sell off their entire stakes by the end of the first quarter. Interestingly, Peter Muller's PDT Partners sold off the largest position of all the hedgies watched by Insider Monkey, totaling about $0.4 million in stock. Peter Algert and Kevin Coldiron's fund, Algert Coldiron Investors, also sold off its stock, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the first quarter.
Let's check out hedge fund activity in other stocks similar to Computer Programs & Systems, Inc. (NASDAQ:CPSI). These stocks are Pzena Investment Management Inc (NYSE:PZN), Teekay Corporation (NYSE:TK), Netfin Acquisition Corp. (NASDAQ:NFIN), and America First Multifamily Investors, L.P. (NASDAQ:ATAX). All of these stocks' market caps are similar to CPSI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PZN,7,7192,0 TK,13,16997,-1 NFIN,12,56443,0 ATAX,1,240,-1 Average,8.25,20218,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $19 million in CPSI's case. Teekay Corporation (NYSE:TK) is the most popular stock in this table. On the other hand America First Multifamily Investors, L.P. (NASDAQ:ATAX) is the least popular one with only 1 bullish hedge fund positions. Computer Programs & Systems, Inc. (NASDAQ:CPSI) 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 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately CPSI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CPSI were disappointed as the stock returned 2.9% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.