We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like NIC Inc. (NASDAQ:EGOV).
Is NIC Inc. (NASDAQ:EGOV) a buy here? The smart money is taking a bullish view. The number of bullish hedge fund bets increased by 3 in recent months. Our calculations also showed that EGOV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). EGOV was in 20 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with EGOV holdings at the end of the previous quarter.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the recent hedge fund action surrounding NIC Inc. (NASDAQ:EGOV).
What have hedge funds been doing with NIC Inc. (NASDAQ:EGOV)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EGOV over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in NIC Inc. (NASDAQ:EGOV) was held by Renaissance Technologies, which reported holding $29.6 million worth of stock at the end of September. It was followed by D E Shaw with a $19.6 million position. Other investors bullish on the company included Arrowstreet Capital, GLG Partners, and Columbus Circle Investors. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to NIC Inc. (NASDAQ:EGOV), around 0.47% of its 13F portfolio. Columbus Circle Investors is also relatively very bullish on the stock, dishing out 0.35 percent of its 13F equity portfolio to EGOV.
Consequently, some big names were leading the bulls’ herd. Columbus Circle Investors, managed by Principal Global Investors, assembled the most outsized position in NIC Inc. (NASDAQ:EGOV). Columbus Circle Investors had $9.6 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $0.7 million position during the quarter. The following funds were also among the new EGOV investors: Matthew Hulsizer’s PEAK6 Capital Management, Donald Sussman’s Paloma Partners, and Brandon Haley’s Holocene Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NIC Inc. (NASDAQ:EGOV) but similarly valued. These stocks are Arcos Dorados Holdings Inc (NYSE:ARCO), Universal Corporation (NYSE:UVV), Cardtronics plc (NASDAQ:CATM), and Kite Realty Group Trust (NYSE:KRG). All of these stocks’ market caps are similar to EGOV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARCO | 14 | 118648 | 0 |
| UVV | 15 | 110979 | -3 |
| CATM | 19 | 351967 | 0 |
| KRG | 10 | 60361 | 4 |
| Average | 14.5 | 160489 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $113 million in EGOV’s case. Cardtronics plc (NASDAQ:CATM) is the most popular stock in this table. On the other hand Kite Realty Group Trust (NYSE:KRG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks NIC Inc. (NASDAQ:EGOV) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on EGOV, though not to the same extent, as the stock returned 9.9% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
