Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like SS&C Technologies Holdings, Inc. (NASDAQ:SSNC).
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 37 hedge funds' portfolios at the end of March. At the end of this article we will also compare SSNC to other stocks including Suzano S.A. (NYSE:SUZ), Twilio Inc. (NYSE:TWLO), and Fortis Inc. (NYSE:FTS) to get a better sense of its popularity.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We're going to take a glance at the recent hedge fund action surrounding SS&C Technologies Holdings, Inc. (NASDAQ:SSNC).
What have hedge funds been doing with SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)?
Heading into the second quarter of 2019, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards SSNC over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Panayotis Takis Sparaggis's Alkeon Capital Management has the largest position in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), worth close to $300.9 million, accounting for 1.5% of its total 13F portfolio. Sitting at the No. 2 spot is Cantillon Capital Management, managed by William von Mueffling, which holds a $226.2 million position; 2.4% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism contain Robert Joseph Caruso's Select Equity Group, John Smith Clark's Southpoint Capital Advisors and Lee Ainslie's Maverick Capital.
Since SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) has faced declining sentiment from hedge fund managers, it's easy to see that there exists a select few funds that slashed their full holdings last quarter. Interestingly, Andrew Immerman and Jeremy Schiffman's Palestra Capital Management sold off the biggest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $104.2 million in stock, and Alexander Captain's Cat Rock Capital was right behind this move, as the fund dropped about $26.2 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). We will take a look at Suzano S.A. (NYSE:SUZ), Twilio Inc. (NYSE:TWLO), Fortis Inc. (NYSE:FTS), and Lennar Corporation (NYSE:LEN). This group of stocks' market values are similar to SSNC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SUZ,1,49875,1 TWLO,59,2213976,13 FTS,13,231336,-1 LEN,61,2310446,-1 Average,33.5,1201408,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1201 million. That figure was $1718 million in SSNC's case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 1 bullish hedge fund positions. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SSNC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SSNC were disappointed as the stock returned -7.6% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.