We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of EPAM Systems Inc (NYSE:EPAM).
EPAM Systems Inc (NYSE:EPAM) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 28 hedge funds’ portfolios at the end of December. At the end of this article we will also compare EPAM to other stocks including Molson Coors Beverage Company (NYSE:TAP), Ally Financial Inc (NYSE:ALLY), and Allegion plc (NYSE:ALLE) to get a better sense of its popularity.
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 S&P 500 ETFs by more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the latest hedge fund action encompassing EPAM Systems Inc (NYSE:EPAM).
How are hedge funds trading EPAM Systems Inc (NYSE:EPAM)?
At Q4’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in EPAM a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paul Marshall and Ian Wace’s Marshall Wace LLP has the number one position in EPAM Systems Inc (NYSE:EPAM), worth close to $104.7 million, accounting for 0.7% of its total 13F portfolio. The second most bullish fund manager is Rajiv Jain of GQG Partners, with a $55.9 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish contain Cliff Asness’s AQR Capital Management, Jeremy Hosking’s Hosking Partners and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Brasada Capital Management allocated the biggest weight to EPAM Systems Inc (NYSE:EPAM), around 3.16% of its 13F portfolio. Atika Capital is also relatively very bullish on the stock, setting aside 1.23 percent of its 13F equity portfolio to EPAM.
Because EPAM Systems Inc (NYSE:EPAM) has experienced bearish sentiment from the smart money, we can see that there exists a select few money managers who were dropping their positions entirely heading into Q4. It’s worth mentioning that Daniel Arbess’s Perella Weinberg Partners said goodbye to the largest position of all the hedgies watched by Insider Monkey, worth close to $2.9 million in stock. James Dondero’s fund, Highland Capital Management, also sold off its stock, about $2.4 million worth. These transactions are important to note, 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 – not necessarily in the same industry as EPAM Systems Inc (NYSE:EPAM) but similarly valued. We will take a look at Molson Coors Beverage Company (NYSE:TAP), Ally Financial Inc (NYSE:ALLY), Allegion plc (NYSE:ALLE), and Chewy, Inc. (NYSE:CHWY). All of these stocks’ market caps match EPAM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TAP | 31 | 403494 | 5 |
| ALLY | 54 | 1809697 | -1 |
| ALLE | 25 | 502977 | -3 |
| CHWY | 35 | 601434 | 10 |
| Average | 36.25 | 829401 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $829 million. That figure was $324 million in EPAM’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Allegion plc (NYSE:ALLE) is the least popular one with only 25 bullish hedge fund positions. EPAM Systems Inc (NYSE:EPAM) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on EPAM, though not to the same extent, as the stock returned -24.5% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
