We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Parsons Corporation (NYSE:PSN).
Parsons Corporation (NYSE:PSN) investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. PSN was in 10 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 13 hedge funds in our database with PSN holdings at the end of the previous quarter. Our calculations also showed that PSN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 41 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_365194" align="aligncenter" width="399"] David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a glance at the key hedge fund action surrounding Parsons Corporation (NYSE:PSN).
What does smart money think about Parsons Corporation (NYSE:PSN)?
At Q4's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PSN over the last 18 quarters. So, let's examine 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, Panayotis Takis Sparaggis's Alkeon Capital Management has the largest position in Parsons Corporation (NYSE:PSN), worth close to $51.2 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Sunriver Management, led by Will Cook, holding a $24.7 million position; 4.3% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions consist of Ken Griffin's Citadel Investment Group, D. E. Shaw's D E Shaw and Ira Unschuld's Brant Point Investment Management. In terms of the portfolio weights assigned to each position Sunriver Management allocated the biggest weight to Parsons Corporation (NYSE:PSN), around 4.33% of its 13F portfolio. Brant Point Investment Management is also relatively very bullish on the stock, dishing out 0.3 percent of its 13F equity portfolio to PSN.
Due to the fact that Parsons Corporation (NYSE:PSN) has faced falling interest from the smart money, it's easy to see that there is a sect of fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors dumped the biggest position of the 750 funds watched by Insider Monkey, totaling close to $14 million in stock. Jeffrey Ubben's fund, ValueAct Capital, also dumped its stock, about $9.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Parsons Corporation (NYSE:PSN) but similarly valued. These stocks are Univar Solutions Inc (NYSE:UNVR), Foot Locker, Inc. (NYSE:FL), Penske Automotive Group, Inc. (NYSE:PAG), and RH (NYSE:RH). All of these stocks' market caps match PSN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNVR,43,1536284,5 FL,29,426619,-5 PAG,29,99761,12 RH,38,1195655,3 Average,34.75,814580,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $815 million. That figure was $95 million in PSN's case. Univar Solutions Inc (NYSE:UNVR) is the most popular stock in this table. On the other hand Foot Locker, Inc. (NYSE:FL) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Parsons Corporation (NYSE:PSN) is even less popular than FL. Hedge funds dodged a bullet by taking a bearish stance towards PSN. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately PSN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PSN investors were disappointed as the stock returned -18.3% 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 most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.