Hedge Funds Are Dumping ExlService Holdings, Inc. (EXLS)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards ExlService Holdings, Inc. (NASDAQ:EXLS).

ExlService Holdings, Inc. (NASDAQ:EXLS) has seen a decrease in hedge fund sentiment of late. Our calculations also showed that EXLS 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.

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 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 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.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 take a look at the recent hedge fund action surrounding ExlService Holdings, Inc. (NASDAQ:EXLS).

How are hedge funds trading ExlService Holdings, Inc. (NASDAQ:EXLS)?

Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXLS over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

The largest stake in ExlService Holdings, Inc. (NASDAQ:EXLS) was held by Renaissance Technologies, which reported holding $18.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $5.9 million position. Other investors bullish on the company included GLG Partners, Dalton Investments, and Millennium Management. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to ExlService Holdings, Inc. (NASDAQ:EXLS), around 3.33% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.37 percent of its 13F equity portfolio to EXLS.

Seeing as ExlService Holdings, Inc. (NASDAQ:EXLS) has faced a decline in interest from hedge fund managers, it’s safe to say that there is a sect of money managers that decided to sell off their entire stakes in the first quarter. It’s worth mentioning that Brandon Haley’s Holocene Advisors dropped the largest investment of the 750 funds watched by Insider Monkey, valued at about $1 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund said goodbye to about $0.5 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ExlService Holdings, Inc. (NASDAQ:EXLS) but similarly valued. These stocks are Progyny, Inc. (NASDAQ:PGNY), Otter Tail Corporation (NASDAQ:OTTR), Commscope Holding Company Inc (NASDAQ:COMM), and Healthcare Services Group, Inc. (NASDAQ:HCSG). This group of stocks’ market values are similar to EXLS’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $47 million in EXLS’s case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand Progyny, Inc. (NASDAQ:PGNY) is the least popular one with only 10 bullish hedge fund positions. ExlService Holdings, Inc. (NASDAQ:EXLS) 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on EXLS, though not to the same extent, as the stock returned 23.2% during the second quarter and outperformed the market.

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