Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like ACI Worldwide Inc (NASDAQ:ACIW).
ACI Worldwide Inc (NASDAQ:ACIW) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds' portfolios at the end of the second quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Graham Holdings Co (NYSE:GHC), Valvoline Inc. (NYSE:VVV), and Enstar Group Ltd. (NASDAQ:ESGR) to gather more data points. Our calculations also showed that ACIW isn't among the 30 most popular stocks among hedge funds (view the video below). 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the key hedge fund action encompassing ACI Worldwide Inc (NASDAQ:ACIW).
What have hedge funds been doing with ACI Worldwide Inc (NASDAQ:ACIW)?
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ACIW over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Cardinal Capital was the largest shareholder of ACI Worldwide Inc (NASDAQ:ACIW), with a stake worth $163.7 million reported as of the end of March. Trailing Cardinal Capital was P2 Capital Partners, which amassed a stake valued at $54.1 million. Arrowstreet Capital, Sunriver Management, and Fisher Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that ACI Worldwide Inc (NASDAQ:ACIW) has faced declining sentiment from the smart money, it's easy to see that there were a few hedge funds that decided to sell off their positions entirely last quarter. Intriguingly, Bruce Emery's Greenvale Capital cut the largest investment of all the hedgies monitored by Insider Monkey, comprising close to $16.3 million in stock. Renaissance Technologies, also said goodbye to its stock, about $15.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ACI Worldwide Inc (NASDAQ:ACIW) but similarly valued. These stocks are Graham Holdings Co (NYSE:GHC), Valvoline Inc. (NYSE:VVV), Enstar Group Ltd. (NASDAQ:ESGR), and frontdoor, inc. (NASDAQ:FTDR). All of these stocks' market caps are similar to ACIW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GHC,15,562705,0 VVV,22,229753,3 ESGR,10,302329,-1 FTDR,40,739174,6 Average,21.75,458490,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $357 million in ACIW's case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 10 bullish hedge fund positions. ACI Worldwide Inc (NASDAQ:ACIW) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ACIW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ACIW were disappointed as the stock returned -8.8% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.