The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of Pegasystems Inc. (NASDAQ:PEGA) and find out how it is affected by hedge funds’ moves.
Pegasystems Inc. (NASDAQ:PEGA) has experienced an increase in enthusiasm from smart money recently. PEGA was in 25 hedge funds’ portfolios at the end of March. There were 19 hedge funds in our database with PEGA positions at the end of the previous quarter. Our calculations also showed that pega isn’t among the 30 most popular stocks among hedge funds.
To most stock holders, hedge funds are seen as slow, old investment vehicles of yesteryear. While there are more than 8000 funds in operation at the moment, We choose to focus on the upper echelon of this club, around 750 funds. These investment experts orchestrate most of the hedge fund industry’s total asset base, and by following their top picks, Insider Monkey has formulated several investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
We’re going to take a look at the key hedge fund action regarding Pegasystems Inc. (NASDAQ:PEGA).
Hedge fund activity in Pegasystems Inc. (NASDAQ:PEGA)
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from the fourth quarter of 2018. On the other hand, there were a total of 18 hedge funds with a bullish position in PEGA a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Luxor Capital Group was the largest shareholder of Pegasystems Inc. (NASDAQ:PEGA), with a stake worth $186.1 million reported as of the end of March. Trailing Luxor Capital Group was Cadian Capital, which amassed a stake valued at $141.1 million. SQN Investors, Fisher Asset Management, and Highline Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Pegasystems Inc. (NASDAQ:PEGA). Arrowstreet Capital had $18.4 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $14.2 million position during the quarter. The other funds with brand new PEGA positions are Thomas Ellis and Todd Hammer’s North Run Capital, Spencer M. Waxman’s Shannon River Fund Management, and Mark N. Diker’s Diker Management.
Let’s now take a look at hedge fund activity in other stocks similar to Pegasystems Inc. (NASDAQ:PEGA). We will take a look at Penumbra Inc (NYSE:PEN), Murphy Oil Corporation (NYSE:MUR), MDU Resources Group Inc (NYSE:MDU), and JBG SMITH Properties (NYSE:JBGS). This group of stocks’ market valuations match PEGA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEN | 20 | 253745 | 2 |
| MUR | 20 | 324847 | 2 |
| MDU | 18 | 189257 | -6 |
| JBGS | 17 | 312625 | -3 |
| Average | 18.75 | 270119 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $270 million. That figure was $703 million in PEGA’s case. Penumbra Inc (NYSE:PEN) is the most popular stock in this table. On the other hand JBG SMITH Properties (NYSE:JBGS) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Pegasystems Inc. (NASDAQ:PEGA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on PEGA as the stock returned 12.8% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
