The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Open Text Corporation (NASDAQ:OTEX) and determine whether the smart money was really smart about this stock.
Hedge fund interest in Open Text Corporation (NASDAQ:OTEX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that OTEX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare OTEX to other stocks including Ceridian HCM Holding Inc. (NYSE:CDAY), Shinhan Financial Group Co., Ltd. (NYSE:SHG), and Ulta Beauty, Inc. (NASDAQ:ULTA) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Kevin Oram of Praesidium Investment Management Company
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's take a peek at the recent hedge fund action encompassing Open Text Corporation (NASDAQ:OTEX).
How are hedge funds trading Open Text Corporation (NASDAQ:OTEX)?
At second quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. By comparison, 16 hedge funds held shares or bullish call options in OTEX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Open Text Corporation (NASDAQ:OTEX) was held by Praesidium Investment Management Company, which reported holding $150.8 million worth of stock at the end of September. It was followed by Blue Harbour Group with a $75.8 million position. Other investors bullish on the company included Arrowstreet Capital, GLG Partners, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Blue Harbour Group allocated the biggest weight to Open Text Corporation (NASDAQ:OTEX), around 21.47% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, designating 9.8 percent of its 13F equity portfolio to OTEX.
Because Open Text Corporation (NASDAQ:OTEX) has faced declining sentiment from hedge fund managers, it's safe to say that there exists a select few hedgies who were dropping their positions entirely last quarter. Interestingly, Will Cook's Sunriver Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, worth an estimated $28.6 million in stock. Ray Dalio's fund, Bridgewater Associates, also dumped its stock, about $2.2 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Open Text Corporation (NASDAQ:OTEX) but similarly valued. These stocks are Ceridian HCM Holding Inc. (NYSE:CDAY), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Ulta Beauty, Inc. (NASDAQ:ULTA), Kirkland Lake Gold Ltd. (NYSE:KL), Enel Americas S.A. (NYSE:ENIA), Apollo Global Management Inc (NYSE:APO), and Dynatrace, Inc. (NYSE:DT). All of these stocks' market caps resemble OTEX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CDAY,30,2098612,6 SHG,2,5215,-3 ULTA,38,662360,-8 KL,23,603164,-5 ENIA,12,96078,5 APO,29,2070869,-5 DT,41,1061434,6 Average,25,942533,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $943 million. That figure was $320 million in OTEX's case. Dynatrace, Inc. (NYSE:DT) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 2 bullish hedge fund positions. Open Text Corporation (NASDAQ:OTEX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OTEX is 50.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately OTEX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OTEX investors were disappointed as the stock returned -0.2% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.