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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards EPAM Systems Inc (NYSE:EPAM) and determine whether hedge funds skillfully traded this stock.
EPAM Systems Inc (NYSE:EPAM) was in 28 hedge funds' portfolios at the end of June. The all time high for this statistics is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. EPAM investors should pay attention to an increase in support from the world's most elite money managers lately. There were 27 hedge funds in our database with EPAM positions at the end of the first quarter. Our calculations also showed that EPAM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to view the new hedge fund action surrounding EPAM Systems Inc (NYSE:EPAM).
Hedge fund activity in EPAM Systems Inc (NYSE:EPAM)
At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EPAM over the last 20 quarters. 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, GQG Partners was the largest shareholder of EPAM Systems Inc (NYSE:EPAM), with a stake worth $220.3 million reported as of the end of September. Trailing GQG Partners was Marshall Wace LLP, which amassed a stake valued at $114.2 million. Hosking Partners, AQR Capital Management, and Renaissance Technologies 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 Sloane Robinson Investment Management allocated the biggest weight to EPAM Systems Inc (NYSE:EPAM), around 4.65% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, designating 4.13 percent of its 13F equity portfolio to EPAM.
As one would reasonably expect, key money managers have been driving this bullishness. Renaissance Technologies, assembled the most outsized position in EPAM Systems Inc (NYSE:EPAM). Renaissance Technologies had $18 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $10.5 million position during the quarter. The other funds with brand new EPAM positions are Anna Nikolayevsky's Axel Capital Management, Jonathan Lourie and Stuart Fiertz's Cheyne Capital, and Curtis Schenker and Craig Effron's Scoggin.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as EPAM Systems Inc (NYSE:EPAM) but similarly valued. We will take a look at Teradyne, Inc. (NYSE:TER), Dover Corporation (NYSE:DOV), Rollins, Inc. (NYSE:ROL), International Paper Company (NYSE:IP), Hartford Financial Services Group Inc (NYSE:HIG), Tyler Technologies, Inc. (NYSE:TYL), and ONEOK, Inc. (NYSE:OKE). This group of stocks' market valuations match EPAM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TER,34,1354430,6 DOV,40,683970,9 ROL,29,577262,4 IP,29,238219,0 HIG,39,917896,2 TYL,36,533929,6 OKE,25,117132,0 Average,33.1,631834,3.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $632 million. That figure was $483 million in EPAM's case. Dover Corporation (NYSE:DOV) is the most popular stock in this table. On the other hand ONEOK, Inc. (NYSE:OKE) is the least popular one with only 25 bullish hedge fund positions. EPAM Systems Inc (NYSE:EPAM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EPAM is 46. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. A small number of hedge funds were also right about betting on EPAM as the stock returned 28.1% since the end of June (through September 25th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.