Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. NASDAQ and Russell 2000 indices were already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points in the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Paycom Software Inc (NYSE:PAYC).
Paycom Software Inc (NYSE:PAYC) was in 19 hedge funds' portfolios at the end of December. PAYC investors should pay attention to a decrease in hedge fund interest recently. There were 23 hedge funds in our database with PAYC holdings at the end of September. Hedge fund sentiment towards the stock was at its all time high at the end of September.
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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 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.
We're going to take a gander at the recent hedge fund action regarding Paycom Software Inc (NYSE:PAYC).
What does the smart money think about Paycom Software Inc (NYSE:PAYC)?
Heading into the first quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PAYC over the last 14 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Waratah Capital Advisors held the most valuable stake in Paycom Software Inc (NYSE:PAYC), which was worth $37.9 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $25.9 million worth of shares. Moreover, Millennium Management, D E Shaw, and McKinley Capital Management were also bullish on Paycom Software Inc (NYSE:PAYC), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Paycom Software Inc (NYSE:PAYC) has witnessed a decline in interest from the smart money, it's easy to see that there were a few money managers that decided to sell off their positions entirely in the third quarter. Intriguingly, Jim Simons's Renaissance Technologies sold off the biggest investment of all the hedgies followed by Insider Monkey, worth about $31.4 million in stock, and James Crichton's Hitchwood Capital Management was right behind this move, as the fund said goodbye to about $7.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Paycom Software Inc (NYSE:PAYC). We will take a look at Aramark (NYSE:ARMK), Snap Inc. (NYSE:SNAP), Formula One Group (NASDAQ:FWONK), and L Brands Inc (NYSE:LB). This group of stocks' market valuations match PAYC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARMK,39,907568,4 SNAP,17,346942,0 FWONK,35,1654773,-4 LB,35,641047,8 Average,31.5,887583,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $888 million. That figure was $149 million in PAYC's case. Aramark (NYSE:ARMK) is the most popular stock in this table. On the other hand Snap Inc. (NYSE:SNAP) is the least popular one with only 17 bullish hedge fund positions. Paycom Software Inc (NYSE:PAYC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Nineteen hedge funds were also right about betting on Microsoft as the stock returned 22.6% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.
Disclosure: None. This article was originally published at Insider Monkey.