Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Yext, Inc. (NYSE:YEXT) was in 21 hedge funds’ portfolios at the end of the second quarter of 2019. YEXT has seen a decrease in support from the world’s most elite money managers lately. There were 23 hedge funds in our database with YEXT holdings at the end of the previous quarter. Our calculations also showed that YEXT isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the fresh hedge fund action encompassing Yext, Inc. (NYSE:YEXT).
What does smart money think about Yext, Inc. (NYSE:YEXT)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in YEXT over the last 16 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 increasing their holdings considerably (or already accumulated large positions).
The largest stake in Yext, Inc. (NYSE:YEXT) was held by D E Shaw, which reported holding $39.2 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $32.4 million position. Other investors bullish on the company included Polar Capital, Two Sigma Advisors, and Whetstone Capital Advisors.
Because Yext, Inc. (NYSE:YEXT) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of funds that elected to cut their positions entirely by the end of the second quarter. It’s worth mentioning that Jeffrey Talpins’s Element Capital Management dumped the largest position of the 750 funds watched by Insider Monkey, valued at close to $20 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $7 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 second quarter.
Let’s check out hedge fund activity in other stocks similar to Yext, Inc. (NYSE:YEXT). We will take a look at Enphase Energy Inc (NASDAQ:ENPH), Healthcare Services Group, Inc. (NASDAQ:HCSG), WESCO International, Inc. (NYSE:WCC), and Ligand Pharmaceuticals Inc. (NASDAQ:LGND). All of these stocks’ market caps match YEXT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENPH | 20 | 299148 | 1 |
| HCSG | 20 | 101308 | -1 |
| WCC | 18 | 473813 | -8 |
| LGND | 19 | 416379 | -4 |
| Average | 19.25 | 322662 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $323 million. That figure was $186 million in YEXT’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand WESCO International, Inc. (NYSE:WCC) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Yext, Inc. (NYSE:YEXT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately YEXT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on YEXT were disappointed as the stock returned -20.9% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
