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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Q2 Holdings Inc (NYSE:QTWO).
Is Q2 Holdings Inc (NYSE:QTWO) a buy, sell, or hold? Hedge funds are becoming hopeful. The number of bullish hedge fund positions moved up by 1 lately. Our calculations also showed that QTWO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). QTWO was in 20 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 19 hedge funds in our database with QTWO positions at the end of the previous quarter.
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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
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. With all of this in mind let’s take a peek at the fresh hedge fund action surrounding Q2 Holdings Inc (NYSE:QTWO).
What does smart money think about Q2 Holdings Inc (NYSE:QTWO)?
At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in QTWO over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Adams Street Partners, managed by Jeffrey Diehl, holds the most valuable position in Q2 Holdings Inc (NYSE:QTWO). Adams Street Partners has a $127.9 million position in the stock, comprising 26.1% of its 13F portfolio. The second most bullish fund manager is Brett Barakett of Tremblant Capital, with a $86.2 million position; the fund has 4.3% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism consist of Principal Global Investors’s Columbus Circle Investors, Bobby Yazdani and Babak Poushanchi’s Cota Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Adams Street Partners allocated the biggest weight to Q2 Holdings Inc (NYSE:QTWO), around 26.12% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, earmarking 7.71 percent of its 13F equity portfolio to QTWO.
As aggregate interest increased, specific money managers were breaking ground themselves. Cota Capital, managed by Bobby Yazdani and Babak Poushanchi, initiated the most outsized position in Q2 Holdings Inc (NYSE:QTWO). Cota Capital had $13.9 million invested in the company at the end of the quarter. Nancy Zevenbergen’s Zevenbergen Capital Investments also made a $12.1 million investment in the stock during the quarter. The other funds with brand new QTWO positions are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Peter Muller’s PDT Partners, and Jonathan Soros’s JS Capital.
Let’s go over hedge fund activity in other stocks similar to Q2 Holdings Inc (NYSE:QTWO). We will take a look at Umpqua Holdings Corp (NASDAQ:UMPQ), Sanderson Farms, Inc. (NASDAQ:SAFM), Globant SA (NYSE:GLOB), and Selective Insurance Group, Inc. (NASDAQ:SIGI). This group of stocks’ market values are closest to QTWO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UMPQ | 16 | 234753 | -7 |
| SAFM | 36 | 700510 | 12 |
| GLOB | 18 | 52725 | 1 |
| SIGI | 25 | 111114 | -1 |
| Average | 23.75 | 274776 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $316 million in QTWO’s case. Sanderson Farms, Inc. (NASDAQ:SAFM) is the most popular stock in this table. On the other hand Umpqua Holdings Corp (NASDAQ:UMPQ) is the least popular one with only 16 bullish hedge fund positions. Q2 Holdings Inc (NYSE:QTWO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately QTWO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); QTWO investors were disappointed as the stock returned -28.7% during the same time period 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 most of these stocks already outperformed the market in Q1.
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.
