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Where Do Hedge Funds Stand On StepStone Group Inc. (STEP)?

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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards StepStone Group Inc. (NASDAQ:STEP).

Is StepStone Group Inc. (NASDAQ:STEP) worth your attention right now? Hedge funds were taking an optimistic view. The number of long hedge fund bets improved by 15 recently. StepStone Group Inc. (NASDAQ:STEP) was in 15 hedge funds' portfolios at the end of September. Our calculations also showed that STEP isn't among the 30 most popular stocks among hedge funds (click for Q3 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 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 S&P 500 ETFs by 66 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 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.

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let's analyze the fresh hedge fund action surrounding StepStone Group Inc. (NASDAQ:STEP).

Do Hedge Funds Think STEP Is A Good Stock To Buy Now?

At the end of September, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15 from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in STEP over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in StepStone Group Inc. (NASDAQ:STEP) was held by Adage Capital Management, which reported holding $14.3 million worth of stock at the end of September. It was followed by Inherent Group with a $13.6 million position. Other investors bullish on the company included Citadel Investment Group, Engle Capital, and Driehaus Capital. In terms of the portfolio weights assigned to each position Inherent Group allocated the biggest weight to StepStone Group Inc. (NASDAQ:STEP), around 6.78% of its 13F portfolio. Engle Capital is also relatively very bullish on the stock, designating 1.55 percent of its 13F equity portfolio to STEP.

Consequently, some big names were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most outsized position in StepStone Group Inc. (NASDAQ:STEP). Adage Capital Management had $14.3 million invested in the company at the end of the quarter. Tony Davis's Inherent Group also made a $13.6 million investment in the stock during the quarter. The other funds with brand new STEP positions are Ken Griffin's Citadel Investment Group, Jeffrey Hoffner's Engle Capital, and Richard Driehaus's Driehaus Capital.

Let's now take a look at hedge fund activity in other stocks similar to StepStone Group Inc. (NASDAQ:STEP). These stocks are Ping Identity Holding Corp. (NYSE:PING), Vaxcyte, Inc. (NASDAQ:PCVX), Vonage Holdings Corp. (NASDAQ:VG), Home Bancshares Inc (NASDAQ:HOMB), Brighthouse Financial, Inc. (NASDAQ:BHF), Acushnet Holdings Corp. (NYSE:GOLF), and Option Care Health, Inc. (NASDAQ:OPCH). This group of stocks' market caps are closest to STEP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PING,11,73051,-4 PCVX,10,473971,-2 VG,36,368753,6 HOMB,14,32750,0 BHF,26,296716,-8 GOLF,12,35383,1 OPCH,18,138384,7 Average,18.1,202715,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $84 million in STEP's case. Vonage Holdings Corp. (NASDAQ:VG) is the most popular stock in this table. On the other hand Vaxcyte, Inc. (NASDAQ:PCVX) is the least popular one with only 10 bullish hedge fund positions. StepStone Group Inc. (NASDAQ:STEP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for STEP is 25.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on STEP as the stock returned 25.4% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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

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