Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Qualys Inc (NASDAQ:QLYS) ready to rally soon? Prominent investors are selling. The number of bullish hedge fund bets decreased by 3 lately. Our calculations also showed that QLYS isn’t among the 30 most popular stocks among hedge funds. QLYS was in 14 hedge funds’ portfolios at the end of the first quarter of 2019. There were 17 hedge funds in our database with QLYS positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a peek at the fresh hedge fund action regarding Qualys Inc (NASDAQ:QLYS).
Hedge fund activity in Qualys Inc (NASDAQ:QLYS)
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in QLYS over the last 15 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Qualys Inc (NASDAQ:QLYS), with a stake worth $52 million reported as of the end of March. Trailing Renaissance Technologies was Alkeon Capital Management, which amassed a stake valued at $41.7 million. AQR Capital Management, Gotham Asset Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Because Qualys Inc (NASDAQ:QLYS) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds who were dropping their full holdings in the third quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $0.9 million in stock, and George McCabe’s Portolan Capital Management was right behind this move, as the fund said goodbye to about $0.7 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Qualys Inc (NASDAQ:QLYS). These stocks are Allegheny Technologies Incorporated (NYSE:ATI), AutoNation, Inc. (NYSE:AN), Wolverine World Wide, Inc. (NYSE:WWW), and Green Dot Corporation (NYSE:GDOT). This group of stocks’ market caps resemble QLYS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATI | 25 | 209165 | 1 |
| AN | 21 | 458504 | -1 |
| WWW | 19 | 124564 | 7 |
| GDOT | 27 | 233849 | 8 |
| Average | 23 | 256521 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $257 million. That figure was $145 million in QLYS’s case. Green Dot Corporation (NYSE:GDOT) is the most popular stock in this table. On the other hand Wolverine World Wide, Inc. (NYSE:WWW) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Qualys Inc (NASDAQ:QLYS) is even less popular than WWW. Hedge funds clearly dropped the ball on QLYS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on QLYS as the stock returned 7.5% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
