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Were Hedge Funds Right About Souring On Jack Henry & Associates, Inc. (JKHY)?

Abigail Fisher
·6 min read

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 Jack Henry & Associates, Inc. (NASDAQ:JKHY) and determine whether hedge funds had an edge regarding this stock.

Is Jack Henry & Associates, Inc. (NASDAQ:JKHY) a buy, sell, or hold? Hedge funds were reducing their bets on the stock. The number of long hedge fund positions went down by 2 in recent months. Our calculations also showed that JKHY isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

At the moment there are numerous indicators stock traders put to use to analyze their stock investments. A duo of the best indicators are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can outpace the broader indices by a healthy amount (see the details here).

[caption id="attachment_845793" align="aligncenter" width="398"] Peter Rathjens of Arrowstreet Capital[/caption]

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let's view the key hedge fund action regarding Jack Henry & Associates, Inc. (NASDAQ:JKHY).

What does smart money think about Jack Henry & Associates, Inc. (NASDAQ:JKHY)?

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards JKHY over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, Echo Street Capital Management held the most valuable stake in Jack Henry & Associates, Inc. (NASDAQ:JKHY), which was worth $50.8 million at the end of the third quarter. On the second spot was GLG Partners which amassed $28.9 million worth of shares. Adage Capital Management, Junto Capital Management, and AQR Capital Management 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 Bishop Rock Capital allocated the biggest weight to Jack Henry & Associates, Inc. (NASDAQ:JKHY), around 6.35% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, setting aside 1.89 percent of its 13F equity portfolio to JKHY.

Judging by the fact that Jack Henry & Associates, Inc. (NASDAQ:JKHY) has experienced bearish sentiment from the smart money, it's easy to see that there were a few funds who sold off their positions entirely by the end of the first quarter. It's worth mentioning that Renaissance Technologies said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, valued at about $14.5 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $6.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the first quarter.

Let's check out hedge fund activity in other stocks similar to Jack Henry & Associates, Inc. (NASDAQ:JKHY). We will take a look at Omnicom Group Inc. (NYSE:OMC), Paycom Software Inc (NYSE:PAYC), Steris Plc (NYSE:STE), and CrowdStrike Holdings, Inc. (NASDAQ:CRWD). This group of stocks' market valuations resemble JKHY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OMC,31,327865,9 PAYC,30,239228,3 STE,35,554570,2 CRWD,65,1301564,17 Average,40.25,605807,7.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $606 million. That figure was $277 million in JKHY's case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Paycom Software Inc (NYSE:PAYC) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Jack Henry & Associates, Inc. (NASDAQ:JKHY) is even less popular than PAYC. Hedge funds dodged a bullet by taking a bearish stance towards JKHY. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 15.5 percentage points. Unfortunately JKHY wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); JKHY investors were disappointed as the stock returned 18.8% during the second 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 so far in 2020.

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

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