We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards ExlService Holdings, Inc. (NASDAQ:EXLS).
Is ExlService Holdings, Inc. (NASDAQ:EXLS) a buy here? Investors who are in the know are becoming more confident. The number of bullish hedge fund bets went up by 1 in recent months. Our calculations also showed that exls isn't among the 30 most popular stocks among hedge funds. EXLS was in 11 hedge funds' portfolios at the end of December. There were 10 hedge funds in our database with EXLS positions at the end of the previous quarter.
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' 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 32 percentage points since May 2014 through March 12, 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.
We're going to take a look at the fresh hedge fund action encompassing ExlService Holdings, Inc. (NASDAQ:EXLS).
Hedge fund activity in ExlService Holdings, Inc. (NASDAQ:EXLS)
At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards EXLS over the last 14 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.
Among these funds, Renaissance Technologies held the most valuable stake in ExlService Holdings, Inc. (NASDAQ:EXLS), which was worth $28.7 million at the end of the third quarter. On the second spot was GLG Partners which amassed $1.9 million worth of shares. Moreover, Citadel Investment Group, Marshall Wace LLP, and Two Sigma Advisors were also bullish on ExlService Holdings, Inc. (NASDAQ:EXLS), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, some big names were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most outsized position in ExlService Holdings, Inc. (NASDAQ:EXLS). Marshall Wace LLP had $1.2 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $0.2 million position during the quarter. The only other fund with a brand new EXLS position is Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks similar to ExlService Holdings, Inc. (NASDAQ:EXLS). These stocks are Great Western Bancorp Inc (NYSE:GWB), PriceSmart, Inc. (NASDAQ:PSMT), Bitauto Holdings Limited (NYSE:BITA), and Lithia Motors Inc (NYSE:LAD). All of these stocks' market caps are similar to EXLS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GWB,11,19420,3 PSMT,8,31971,-1 BITA,7,18400,0 LAD,20,470442,1 Average,11.5,135058,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $36 million in EXLS's case. Lithia Motors Inc (NYSE:LAD) is the most popular stock in this table. On the other hand Bitauto Holdings Limited (NYSE:BITA) is the least popular one with only 7 bullish hedge fund positions. ExlService Holdings, Inc. (NASDAQ:EXLS) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately EXLS wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); EXLS investors were disappointed as the stock returned 15.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.