How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Sapiens International Corporation N.V. (NASDAQ:SPNS) and determine whether hedge funds had an edge regarding this stock.
Sapiens International Corporation N.V. (NASDAQ:SPNS) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds' portfolios at the end of the first quarter of 2020. At the end of this article we will also compare SPNS to other stocks including Hecla Mining Company (NYSE:HL), Sirius International Insurance Group, Ltd. (NASDAQ:SG), and La-Z-Boy Incorporated (NYSE:LZB) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26255" align="aligncenter" width="400"] Louis Navellier of Navellier & Associates[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to review the fresh hedge fund action surrounding Sapiens International Corporation N.V. (NASDAQ:SPNS).
What does smart money think about Sapiens International Corporation N.V. (NASDAQ:SPNS)?
At Q1's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SPNS over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Sapiens International Corporation N.V. (NASDAQ:SPNS), which was worth $17.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $8.1 million worth of shares. Navellier & Associates, Millennium Management, and Driehaus Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Sapiens International Corporation N.V. (NASDAQ:SPNS), around 0.48% of its 13F portfolio. Caxton Associates LP is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to SPNS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Engineers Gate Manager).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Sapiens International Corporation N.V. (NASDAQ:SPNS) but similarly valued. These stocks are Hecla Mining Company (NYSE:HL), Sirius International Insurance Group, Ltd. (NASDAQ:SG), La-Z-Boy Incorporated (NYSE:LZB), and Lakeland Financial Corporation (NASDAQ:LKFN). This group of stocks' market values are similar to SPNS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HL,15,55117,1 SG,2,1669,-2 LZB,21,40118,0 LKFN,9,16390,1 Average,11.75,28324,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $33 million in SPNS's case. La-Z-Boy Incorporated (NYSE:LZB) is the most popular stock in this table. On the other hand Sirius International Insurance Group, Ltd. (NASDAQ:SG) is the least popular one with only 2 bullish hedge fund positions. Sapiens International Corporation N.V. (NASDAQ:SPNS) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on SPNS as the stock returned 47.9% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.