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Were Hedge Funds Right About Crowding Into SS&C Technologies Holdings, Inc. (SSNC)?

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Abigail Fisher
·6 min read
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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 SS&C Technologies Holdings, Inc. (NASDAQ:SSNC).

SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) shareholders have witnessed an increase in enthusiasm from smart money recently. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) was in 65 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 59. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 57 hedge funds in our database with SSNC holdings at the end of March. Our calculations also showed that SSNC 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).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Von Mueffling - Cantillon Capital Management
William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

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. With all of this in mind let's go over the fresh hedge fund action regarding SS&C Technologies Holdings, Inc. (NASDAQ:SSNC).

What does smart money think about SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)?

Heading into the third quarter of 2020, a total of 65 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in SSNC a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Select Equity Group was the largest shareholder of SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), with a stake worth $529.6 million reported as of the end of September. Trailing Select Equity Group was Cantillon Capital Management, which amassed a stake valued at $236.2 million. Alkeon Capital Management, Cat Rock Capital, and Southpoint Capital Advisors 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 Blacksheep Fund Management allocated the biggest weight to SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), around 16.24% of its 13F portfolio. Cat Rock Capital is also relatively very bullish on the stock, designating 14.62 percent of its 13F equity portfolio to SSNC.

Consequently, some big names were leading the bulls' herd. Blacksheep Fund Management, managed by Alexis Fortune, assembled the biggest position in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). Blacksheep Fund Management had $38.4 million invested in the company at the end of the quarter. Thomas E. Claugus's GMT Capital also made a $26.1 million investment in the stock during the quarter. The other funds with brand new SSNC positions are Anand Parekh's Alyeska Investment Group, David Fiszel's Honeycomb Asset Management, and Seth Klarman's Baupost Group.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) but similarly valued. These stocks are Ryanair Holdings plc (NASDAQ:RYAAY), Domino's Pizza, Inc. (NYSE:DPZ), ViacomCBS Inc. (NASDAQ:VIAC), GSX Techedu Inc. (NYSE:GSX), Zscaler, Inc. (NASDAQ:ZS), Kansas City Southern (NYSE:KSU), and Jack Henry & Associates, Inc. (NASDAQ:JKHY). This group of stocks' market values match SSNC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RYAAY,21,746925,-1 DPZ,47,1746559,2 VIAC,45,1153093,-9 GSX,13,103316,0 ZS,35,641838,8 KSU,47,502734,2 JKHY,31,276056,4 Average,34.1,738646,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $739 million. That figure was $2274 million in SSNC's case. Domino's Pizza, Inc. (NYSE:DPZ) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is more popular among hedge funds. Our overall hedge fund sentiment score for SSNC is 90. 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. 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 29.2% in 2020 through October 16th and still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on SSNC, though not to the same extent, as the stock returned 14.5% since the end of June (through October 16th) and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.74d5a35wjonryiop[

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