Here is What Hedge Funds Think About Pegasystems Inc. (PEGA)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 5.2% over the 12-month period ending October 30, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey (as of September 2014) generated a return of 9.5% over the same time span, with 63% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Pegasystems Inc. (NASDAQ:PEGA).

Is Pegasystems Inc. a healthy stock for your portfolio? Prominent investors are getting more optimistic. The number of bullish hedge fund bets improved by 1 lately. At the end of this article we will also compare PEGA to other stocks, including Bitauto Hldg Ltd (ADR) (NYSE:BITA), Darling International Inc. (NYSE:DAR), and RSP Permian Inc (NYSE:RSPP) to get a better sense of its popularity.

According to most stock holders, hedge funds are viewed as underperforming, outdated financial vehicles of yesteryear. While there are over 8000 funds in operation today, Our researchers choose to focus on the moguls of this club, about 700 funds. These money managers oversee the lion’s share of all hedge funds’ total asset base, and by watching their matchless equity investments, Insider Monkey has formulated numerous investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, we’re going to view the fresh action surrounding Pegasystems Inc. (NASDAQ:PEGA).

Hedge fund activity in Pegasystems Inc. (NASDAQ:PEGA)

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 6% from the previous quarter. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Eric Bannasch’s Cadian Capital has the biggest position in Pegasystems Inc. (NASDAQ:PEGA), worth close to $67.6 million, corresponding to 2.4% of its total 13F portfolio. Sitting at the No. 2 spot is Fisher Asset Management, managed by Ken Fisher, which holds a $41.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish include Israel Englander’s Millennium Management, Jim Simons’s Renaissance Technologies and Chuck Royce’s Royce & Associates.

Now, key money managers have been driving this bullishness. Nine Chapters Capital Management, managed by Chao Ku, initiated the most valuable position in Pegasystems Inc. (NASDAQ:PEGA), worth an estimated $0.7 million at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Mike Vranos’s Ellington and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now take a look at hedge fund activity in other stocks similar to Pegasystems Inc. (NASDAQ:PEGA). These stocks are Bitauto Hldg Ltd (ADR) (NYSE:BITA), Darling International Inc. (NYSE:DAR), RSP Permian Inc (NYSE:RSPP), and West Corp (NASDAQ:WSTC). This group of stocks’ market caps are similar to PEGA’s market cap.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $138 million in PEGA’s case. Darling International Inc. (NYSE:DAR) is the most popular stock in this table. On the other hand Bitauto Hldg Ltd (ADR) (NYSE:BITA) is the least popular one with only 9 bullish hedge fund positions. Pegasystems Inc. (NASDAQ:PEGA) is not the least popular stock in this group, but the number of funds invested equals the average among the stocks from this group. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard DAR might be a better candidate to consider a long position.