While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Parsons Corporation (NYSE:PSN).
Parsons Corporation (NYSE:PSN) was in 12 hedge funds' portfolios at the end of the third quarter of 2019. PSN investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 15 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 Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_30493" align="aligncenter" width="498"] Jeffrey Ubben of ValueAct Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to take a look at the latest hedge fund action encompassing Parsons Corporation (NYSE:PSN).
Hedge fund activity in Parsons Corporation (NYSE:PSN)
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PSN over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Parsons Corporation (NYSE:PSN) was held by Alkeon Capital Management, which reported holding $31.3 million worth of stock at the end of September. It was followed by Sunriver Management with a $17.7 million position. Other investors bullish on the company included ValueAct Capital, Citadel Investment Group, and 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 3.43% of its 13F portfolio. Brant Point Investment Management is also relatively very bullish on the stock, dishing out 0.26 percent of its 13F equity portfolio to PSN.
Due to the fact that Parsons Corporation (NYSE:PSN) has witnessed bearish sentiment from hedge fund managers, 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. Intriguingly, Jeffrey Talpins's Element Capital Management dumped the largest investment of all the hedgies followed by Insider Monkey, totaling close to $14.7 million in stock. Dan Loeb's fund, Third Point, also cut its stock, about $11.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Parsons Corporation (NYSE:PSN) but similarly valued. We will take a look at Hancock Whitney Corporation (NASDAQ:HWC), Associated Banc Corp (NYSE:ASB), Pan American Silver Corp. (NASDAQ:PAAS), and Federated Investors Inc (NYSE:FII). This group of stocks' market values are closest to PSN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HWC,18,96247,2 ASB,20,209005,1 PAAS,22,328752,5 FII,23,213204,1 Average,20.75,211802,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $75 million in PSN's case. Federated Investors Inc (NYSE:FII) is the most popular stock in this table. On the other hand Hancock Whitney Corporation (NASDAQ:HWC) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Parsons Corporation (NYSE:PSN) is even less popular than HWC. Hedge funds clearly dropped the ball on PSN 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on PSN as the stock returned 21.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.