Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Endava plc (NYSE:DAVA).
Endava plc (NYSE:DAVA) was in 8 hedge funds’ portfolios at the end of June. DAVA investors should pay attention to an increase in enthusiasm from smart money in recent months. There were 6 hedge funds in our database with DAVA holdings at the end of the previous quarter. Our calculations also showed that DAVA 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
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. We’re going to go over the latest hedge fund action encompassing Endava plc (NYSE:DAVA).
What does smart money think about Endava plc (NYSE:DAVA)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the first quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in DAVA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Endava plc (NYSE:DAVA) was held by Driehaus Capital, which reported holding $41.9 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $4.1 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Arrowstreet Capital.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Endava plc (NYSE:DAVA) headfirst. Renaissance Technologies, assembled the biggest position in Endava plc (NYSE:DAVA). Renaissance Technologies had $4.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.8 million investment in the stock during the quarter. The only other fund with a new position in the stock is Mike Vranos’s Ellington.
Let’s go over hedge fund activity in other stocks similar to Endava plc (NYSE:DAVA). These stocks are WESCO International, Inc. (NYSE:WCC), Ligand Pharmaceuticals Inc. (NASDAQ:LGND), United Community Banks Inc (NASDAQ:UCBI), and Altra Industrial Motion Corp. (NASDAQ:AIMC). This group of stocks’ market caps are closest to DAVA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WCC | 18 | 473813 | -8 |
| LGND | 19 | 416379 | -4 |
| UCBI | 12 | 56454 | -3 |
| AIMC | 14 | 272459 | -8 |
| Average | 15.75 | 304776 | -5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $305 million. That figure was $52 million in DAVA’s case. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) is the most popular stock in this table. On the other hand United Community Banks Inc (NASDAQ:UCBI) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Endava plc (NYSE:DAVA) is even less popular than UCBI. Hedge funds dodged a bullet by taking a bearish stance towards DAVA. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DAVA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DAVA investors were disappointed as the stock returned -5.9% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
