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 ExlService Holdings, Inc. (NASDAQ:EXLS) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
ExlService Holdings, Inc. (NASDAQ:EXLS) was in 18 hedge funds' portfolios at the end of December. EXLS shareholders have witnessed an increase in activity from the world's largest hedge funds of late. There were 16 hedge funds in our database with EXLS holdings at the end of the previous quarter. Our calculations also showed that EXLS 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).
In the eyes of most investors, hedge funds are viewed as unimportant, old investment vehicles of years past. While there are more than 8000 funds in operation at the moment, Our researchers hone in on the crème de la crème of this club, approximately 850 funds. It is estimated that this group of investors command most of the hedge fund industry's total asset base, and by keeping an eye on their matchless picks, Insider Monkey has spotted various investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_699750" align="aligncenter" width="400"] Gifford Combs of Dalton Investments[/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. Keeping this in mind let's check out the new hedge fund action surrounding ExlService Holdings, Inc. (NASDAQ:EXLS).
Hedge fund activity in ExlService Holdings, Inc. (NASDAQ:EXLS)
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EXLS over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ExlService Holdings, Inc. (NASDAQ:EXLS) was held by Renaissance Technologies, which reported holding $23.5 million worth of stock at the end of September. It was followed by GLG Partners with a $7.8 million position. Other investors bullish on the company included Dalton Investments, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to ExlService Holdings, Inc. (NASDAQ:EXLS), around 2.62% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.27 percent of its 13F equity portfolio to EXLS.
As aggregate interest increased, key hedge funds were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, established the largest position in ExlService Holdings, Inc. (NASDAQ:EXLS). Citadel Investment Group had $3.6 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $0.5 million investment in the stock during the quarter. The other funds with brand new EXLS positions are Roger Ibbotson's Zebra Capital Management, Schonfeld Strategic Advisors, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ExlService Holdings, Inc. (NASDAQ:EXLS) but similarly valued. These stocks are Varonis Systems Inc (NASDAQ:VRNS), SSR Mining Inc. (NASDAQ:SSRM), Livongo Health, Inc. (NASDAQ:LVGO), and FGL Holdings (NYSE:FG). This group of stocks' market caps resemble EXLS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VRNS,18,455392,-7 SSRM,16,229804,1 LVGO,18,100042,2 FG,17,162275,-8 Average,17.25,236878,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $49 million in EXLS's case. Varonis Systems Inc (NASDAQ:VRNS) is the most popular stock in this table. On the other hand SSR Mining Inc. (NASDAQ:SSRM) is the least popular one with only 16 bullish hedge fund positions. ExlService Holdings, Inc. (NASDAQ:EXLS) 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 20 most popular stocks among hedge funds 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 beat the market by 4.2 percentage points. Unfortunately EXLS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EXLS were disappointed as the stock returned -28.8% 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 many of these stocks already outperformed the market so far this year. 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.