It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Insperity Inc (NYSE:NSP).
Hedge fund interest in Insperity Inc (NYSE:NSP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Bemis Company, Inc. (NYSE:BMS), Chesapeake Energy Corporation (NYSE:CHK), and MKS Instruments, Inc. (NASDAQ:MKSI) to gather more data points.
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 go over the key hedge fund action encompassing Insperity Inc (NYSE:NSP).
What does the smart money think about Insperity Inc (NYSE:NSP)?
At Q1's end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in NSP over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Insperity Inc (NYSE:NSP), with a stake worth $84.4 million reported as of the end of March. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $74.2 million. Marshall Wace LLP, Winton Capital Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Since Insperity Inc (NYSE:NSP) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedgies that slashed their full holdings last quarter. It's worth mentioning that D. E. Shaw's D E Shaw dropped the largest position of the "upper crust" of funds monitored by Insider Monkey, valued at close to $0.5 million in stock, and David Andre and Astro Teller's Cerebellum Capital was right behind this move, as the fund sold off about $0.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Insperity Inc (NYSE:NSP) but similarly valued. These stocks are Bemis Company, Inc. (NYSE:BMS), Chesapeake Energy Corporation (NYSE:CHK), MKS Instruments, Inc. (NASDAQ:MKSI), and Popular Inc (NASDAQ:BPOP). All of these stocks' market caps match NSP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BMS,29,373125,3 CHK,20,179653,5 MKSI,22,559663,-8 BPOP,33,776860,1 Average,26,472325,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $472 million. That figure was $458 million in NSP's case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table. On the other hand Chesapeake Energy Corporation (NYSE:CHK) is the least popular one with only 20 bullish hedge fund positions. Insperity Inc (NYSE:NSP) 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 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. Unfortunately NSP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NSP investors were disappointed as the stock returned -6.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.