The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Progress Software Corporation (NASDAQ:PRGS) and find out how it is affected by hedge funds' moves.
Is Progress Software Corporation (NASDAQ:PRGS) worth your attention right now? Investors who are in the know are in a bearish mood. The number of bullish hedge fund positions fell by 3 lately. Our calculations also showed that PRGS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PRGS was in 21 hedge funds' portfolios at the end of September. There were 24 hedge funds in our database with PRGS holdings at the end of the previous quarter. Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the key hedge fund action encompassing Progress Software Corporation (NASDAQ:PRGS).
Hedge fund activity in Progress Software Corporation (NASDAQ:PRGS)
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in PRGS a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Progress Software Corporation (NASDAQ:PRGS), which was worth $59.2 million at the end of the third quarter. On the second spot was GLG Partners which amassed $48.1 million worth of shares. Fisher Asset Management, D E Shaw, and AQR Capital Management 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 Quantinno Capital allocated the biggest weight to Progress Software Corporation (NASDAQ:PRGS), around 0.19% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, dishing out 0.18 percent of its 13F equity portfolio to PRGS.
Due to the fact that Progress Software Corporation (NASDAQ:PRGS) has experienced falling interest from the entirety of the hedge funds we track, it's safe to say that there were a few funds who were dropping their positions entirely heading into Q4. Interestingly, Minhua Zhang's Weld Capital Management cut the biggest investment of the 750 funds watched by Insider Monkey, valued at close to $0.7 million in stock. Bruce Kovner's fund, Caxton Associates, also dumped its stock, about $0.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Progress Software Corporation (NASDAQ:PRGS) but similarly valued. These stocks are Patterson Companies, Inc. (NASDAQ:PDCO), Axos Financial, Inc. (NYSE:AX), McGrath RentCorp (NASDAQ:MGRC), and Zuora, Inc. (NYSE:ZUO). This group of stocks' market caps match PRGS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PDCO,22,159641,-1 AX,13,54561,-1 MGRC,21,157899,3 ZUO,23,153629,4 Average,19.75,131433,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $207 million in PRGS's case. Zuora, Inc. (NYSE:ZUO) is the most popular stock in this table. On the other hand Axos Financial, Inc. (NYSE:AX) is the least popular one with only 13 bullish hedge fund positions. Progress Software Corporation (NASDAQ:PRGS) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PRGS, though not to the same extent, as the stock returned 10.4% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.