Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Jacobs Engineering Group Inc (NYSE:JEC).
Hedge fund interest in Jacobs Engineering Group Inc (NYSE:JEC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare JEC to other stocks including The Ultimate Software Group, Inc. (NASDAQ:ULTI), Enel Americas S.A. (NYSE:ENIA), and W.R. Berkley Corporation (NYSE:WRB) to get a better sense of its popularity.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's take a glance at the fresh hedge fund action encompassing Jacobs Engineering Group Inc (NYSE:JEC).
How are hedge funds trading Jacobs Engineering Group Inc (NYSE:JEC)?
Heading into the second quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2018. On the other hand, there were a total of 26 hedge funds with a bullish position in JEC a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Select Equity Group was the largest shareholder of Jacobs Engineering Group Inc (NYSE:JEC), with a stake worth $381.8 million reported as of the end of March. Trailing Select Equity Group was Citadel Investment Group, which amassed a stake valued at $236.4 million. Alyeska Investment Group, Scopus Asset Management, and Lodge Hill Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Jacobs Engineering Group Inc (NYSE:JEC) has faced falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of fund managers that decided to sell off their full holdings heading into Q3. Intriguingly, Jonathan Barrett and Paul Segal's Luminus Management dropped the biggest stake of all the hedgies monitored by Insider Monkey, totaling close to $78.4 million in stock. Principal Global Investors's fund, Columbus Circle Investors, also dropped its stock, about $18.4 million worth. These transactions 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 Jacobs Engineering Group Inc (NYSE:JEC) but similarly valued. These stocks are The Ultimate Software Group, Inc. (NASDAQ:ULTI), Enel Americas S.A. (NYSE:ENIA), W.R. Berkley Corporation (NYSE:WRB), and Open Text Corporation (NASDAQ:OTEX). This group of stocks' market caps are similar to JEC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ULTI,35,1420211,15 ENIA,14,151897,3 WRB,18,253246,-5 OTEX,22,791223,2 Average,22.25,654144,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $654 million. That figure was $1009 million in JEC's case. The Ultimate Software Group, Inc. (NASDAQ:ULTI) is the most popular stock in this table. On the other hand Enel Americas S.A. (NYSE:ENIA) is the least popular one with only 14 bullish hedge fund positions. Jacobs Engineering Group Inc (NYSE:JEC) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on JEC, though not to the same extent, as the stock returned 0.2% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.