Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) was in 41 hedge funds' portfolios at the end of the second quarter of 2019. SSNC investors should be aware of an increase in hedge fund interest recently. There were 37 hedge funds in our database with SSNC positions at the end of the previous quarter. Our calculations also showed that SSNC isn't among the 30 most popular stocks among hedge funds.
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 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 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 our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 review the recent hedge fund action regarding SS&C Technologies Holdings, Inc. (NASDAQ:SSNC).
What have hedge funds been doing with SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)?
At Q2's end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. By comparison, 35 hedge funds held shares or bullish call options in SSNC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alkeon Capital Management was the largest shareholder of SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), with a stake worth $250.6 million reported as of the end of March. Trailing Alkeon Capital Management was Cantillon Capital Management, which amassed a stake valued at $245.6 million. Select Equity Group, Southpoint Capital Advisors, and Echo Street Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, some big names have been driving this bullishness. SQN Investors, managed by Amish Mehta, created the largest position in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). SQN Investors had $49.1 million invested in the company at the end of the quarter. Alexander Captain's Cat Rock Capital also made a $24.2 million investment in the stock during the quarter. The other funds with brand new SSNC positions are Renaissance Technologies, Leon Lowenstein's Lionstone Capital Management, and Peter Seuss's Prana Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) but similarly valued. These stocks are CenterPoint Energy, Inc. (NYSE:CNP), Sea Limited (NYSE:SE), CarMax Inc (NYSE:KMX), and Okta, Inc. (NASDAQ:OKTA). This group of stocks' market valuations resemble SSNC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNP,29,1051355,-5 SE,60,3337823,10 KMX,39,2155887,10 OKTA,39,1259179,-4 Average,41.75,1951061,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.75 hedge funds with bullish positions and the average amount invested in these stocks was $1951 million. That figure was $1597 million in SSNC's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand CenterPoint Energy, Inc. (NYSE:CNP) is the least popular one with only 29 bullish hedge fund positions. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) 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 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 SSNC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SSNC investors were disappointed as the stock returned -10.3% 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. 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.