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 SPS Commerce, Inc. (NASDAQ:SPSC) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
SPS Commerce, Inc. (NASDAQ:SPSC) investors should pay attention to an increase in hedge fund sentiment of late. SPSC was in 24 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with SPSC positions at the end of the previous quarter. Our calculations also showed that SPSC 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).
According to most investors, hedge funds are viewed as underperforming, old financial vehicles of years past. While there are greater than 8000 funds with their doors open at the moment, We hone in on the masters of this club, approximately 850 funds. These investment experts orchestrate bulk of the hedge fund industry's total capital, and by observing their top stock picks, Insider Monkey has determined a few investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a 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_27480" align="aligncenter" width="400"] Israel Englander of Millennium Management[/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. Now we're going to take a gander at the latest hedge fund action encompassing SPS Commerce, Inc. (NASDAQ:SPSC).
How are hedge funds trading SPS Commerce, Inc. (NASDAQ:SPSC)?
At Q4's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in SPSC over the last 18 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in SPS Commerce, Inc. (NASDAQ:SPSC), which was worth $42.8 million at the end of the third quarter. On the second spot was Portsea Asset Management which amassed $36 million worth of shares. Millennium Management, D E Shaw, and Two Sigma Advisors 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 Portsea Asset Management allocated the biggest weight to SPS Commerce, Inc. (NASDAQ:SPSC), around 23.34% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, designating 0.81 percent of its 13F equity portfolio to SPSC.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Royce & Associates, managed by Chuck Royce, established the largest position in SPS Commerce, Inc. (NASDAQ:SPSC). Royce & Associates had $3.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $2.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith's Laurion Capital Management, Peter Muller's PDT Partners, and Matthew L Pinz's Pinz Capital.
Let's also examine hedge fund activity in other stocks similar to SPS Commerce, Inc. (NASDAQ:SPSC). We will take a look at Safehold Inc. (NYSE:SAFE), BMC Stock Holdings, Inc. (NASDAQ:BMCH), Bloomin' Brands Inc (NASDAQ:BLMN), and Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). All of these stocks' market caps match SPSC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAFE,7,16346,-1 BMCH,29,335228,0 BLMN,18,220934,0 KTOS,16,39987,-6 Average,17.5,153124,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $197 million in SPSC's case. BMC Stock Holdings, Inc. (NASDAQ:BMCH) is the most popular stock in this table. On the other hand Safehold Inc. (NYSE:SAFE) is the least popular one with only 7 bullish hedge fund positions. SPS Commerce, Inc. (NASDAQ:SPSC) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 4.2 percentage points. Hedge funds were also right about betting on SPSC, though not to the same extent, as the stock returned -16.3% during the first three months of 2020 (through April 6th) and outperformed the market as well. 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.