Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
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 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to check out the key hedge fund action encompassing EPAM Systems Inc (NYSE:EPAM).
What have hedge funds been doing with EPAM Systems Inc (NYSE:EPAM)?
At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EPAM over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in EPAM Systems Inc (NYSE:EPAM). AQR Capital Management has a $17 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Atika Capital, managed by Brad Farber, which holds a $7.1 million position; 1.4% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions contain Israel Englander's Millennium Management, Richard Driehaus's Driehaus Capital and Phill Gross and Robert Atchinson's Adage Capital Management.
Judging by the fact that EPAM Systems Inc (NYSE:EPAM) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of funds who sold off their full holdings in the third quarter. It's worth mentioning that Ken Griffin's Citadel Investment Group said goodbye to the biggest investment of the "upper crust" of funds tracked by Insider Monkey, worth about $4.4 million in stock. Brandon Osten's fund, Venator Capital Management, also cut its stock, about $4 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to EPAM Systems Inc (NYSE:EPAM). These stocks are Bio-Rad Laboratories, Inc. (NYSE:BIO), Mohawk Industries, Inc. (NYSE:MHK), CF Industries Holdings, Inc. (NYSE:CF), and Henry Schein, Inc. (NASDAQ:HSIC). All of these stocks' market caps are closest to EPAM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BIO,37,888698,2 MHK,34,1887240,2 CF,32,763506,-10 HSIC,22,1272395,-5 Average,31.25,1202960,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1203 million. That figure was $72 million in EPAM's case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand Henry Schein, Inc. (NASDAQ:HSIC) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks EPAM Systems Inc (NYSE:EPAM) is even less popular than HSIC. Hedge funds clearly dropped the ball on EPAM as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on EPAM as the stock returned 2.3% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.