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 NIC Inc. (NASDAQ:EGOV) based on that data.
NIC Inc. (NASDAQ:EGOV) was in 17 hedge funds' portfolios at the end of March. EGOV shareholders have witnessed a decrease in support from the world's most elite money managers of late. There were 22 hedge funds in our database with EGOV holdings at the end of the previous quarter. Our calculations also showed that EGOV 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.
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 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. 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_746893" align="aligncenter" width="392"] Paul Marshall of Marshall Wace[/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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to review the recent hedge fund action regarding NIC Inc. (NASDAQ:EGOV).
How have hedgies been trading NIC Inc. (NASDAQ:EGOV)?
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EGOV over the last 18 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in NIC Inc. (NASDAQ:EGOV), which was worth $40.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $19.8 million worth of shares. GLG Partners, Arrowstreet Capital, and Columbus Circle Investors 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 Zebra Capital Management allocated the biggest weight to NIC Inc. (NASDAQ:EGOV), around 0.83% of its 13F portfolio. Columbus Circle Investors is also relatively very bullish on the stock, earmarking 0.38 percent of its 13F equity portfolio to EGOV.
Seeing as NIC Inc. (NASDAQ:EGOV) has faced declining sentiment from hedge fund managers, it's safe to say that there exists a select few funds who were dropping their full holdings last quarter. Intriguingly, Paul Tudor Jones's Tudor Investment Corp cut the largest investment of the 750 funds followed by Insider Monkey, worth about $0.9 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund cut about $0.5 million worth. These moves are important to note, as total hedge fund interest fell by 5 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as NIC Inc. (NASDAQ:EGOV) but similarly valued. We will take a look at 21Vianet Group Inc (NASDAQ:VNET), KAR Auction Services Inc (NYSE:KAR), ForeScout Technologies, Inc. (NASDAQ:FSCT), and Kennametal Inc. (NYSE:KMT). This group of stocks' market caps are similar to EGOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VNET,15,129811,-1 KAR,21,203698,-5 FSCT,33,421646,12 KMT,17,147627,-2 Average,21.5,225696,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $105 million in EGOV's case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand 21Vianet Group Inc (NASDAQ:VNET) is the least popular one with only 15 bullish hedge fund positions. NIC Inc. (NASDAQ:EGOV) 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 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately EGOV wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EGOV investors were disappointed as the stock returned -0.8% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.