Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Guidewire Software Inc (NYSE:GWRE) investors should be aware of an increase in enthusiasm from smart money in recent months. Our calculations also showed that gwre isn’t among the 30 most popular stocks among hedge funds.
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 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.
We’re going to take a glance at the recent hedge fund action regarding Guidewire Software Inc (NYSE:GWRE).
How have hedgies been trading Guidewire Software Inc (NYSE:GWRE)?
At Q1’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in GWRE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Stockbridge Partners was the largest shareholder of Guidewire Software Inc (NYSE:GWRE), with a stake worth $226.7 million reported as of the end of March. Trailing Stockbridge Partners was D1 Capital Partners, which amassed a stake valued at $194.7 million. Cadian Capital, Shannon River Fund Management, and Corvex Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers have jumped into Guidewire Software Inc (NYSE:GWRE) headfirst. Corvex Capital, managed by Keith Meister, established the biggest position in Guidewire Software Inc (NYSE:GWRE). Corvex Capital had $37.5 million invested in the company at the end of the quarter. Guy Shahar’s DSAM Partners also initiated a $23.1 million position during the quarter. The other funds with new positions in the stock are Marcelo Desio’s Lucha Capital Management, Howard Marks’s Oaktree Capital Management, and Jonathan Soros’s JS Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Guidewire Software Inc (NYSE:GWRE) but similarly valued. We will take a look at CPFL Energia S.A. (NYSE:CPL), Fair Isaac Corporation (NYSE:FICO), Lamar Advertising Co (NASDAQ:LAMR), and BeiGene, Ltd. (NASDAQ:BGNE). This group of stocks’ market caps match GWRE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPL | 2 | 16292 | 0 |
| FICO | 27 | 600858 | 3 |
| LAMR | 20 | 249583 | -2 |
| BGNE | 15 | 1822583 | 0 |
| Average | 16 | 672329 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $672 million. That figure was $689 million in GWRE’s case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 2 bullish hedge fund positions. Guidewire Software Inc (NYSE:GWRE) is not the most popular stock in this group but hedge fund interest is still above average. 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 GWRE as the stock returned 6% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
