Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Perspecta Inc. (NYSE:PRSP) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 40 hedge funds’ portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Service Properties Trust (NASDAQ:SVC), Tempur Sealy International Inc. (NYSE:TPX), and Mine Safety Appliances (NYSE:MSA) to gather more data points. Our calculations also showed that PRSP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie of Maverick Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to go over the key hedge fund action encompassing Perspecta Inc. (NYSE:PRSP).
What does smart money think about Perspecta Inc. (NYSE:PRSP)?
Heading into the fourth quarter of 2019, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PRSP over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Lee Ainslie’s Maverick Capital has the most valuable position in Perspecta Inc. (NYSE:PRSP), worth close to $177.8 million, accounting for 2.6% of its total 13F portfolio. Sitting at the No. 2 spot is Dorsal Capital Management, led by Ryan Frick and Oliver Evans, holding a $67.9 million position; 4.1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain Michael Doheny’s Freshford Capital Management, Will Cook’s Sunriver Management and Eli Cohen’s Crescent Park Management. In terms of the portfolio weights assigned to each position Bodenholm Capital allocated the biggest weight to Perspecta Inc. (NYSE:PRSP), around 14.78% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, earmarking 9.41 percent of its 13F equity portfolio to PRSP.
Because Perspecta Inc. (NYSE:PRSP) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds that slashed their entire stakes by the end of the third quarter. Intriguingly, Robert Pohly’s Samlyn Capital cut the largest position of the 750 funds monitored by Insider Monkey, valued at an estimated $27.2 million in stock. David Rosen’s fund, Rubric Capital Management, also dropped its stock, about $20.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Perspecta Inc. (NYSE:PRSP). These stocks are Service Properties Trust (NASDAQ:SVC), Tempur Sealy International Inc. (NYSE:TPX), Mine Safety Appliances (NYSE:MSA), and VEON Ltd. (NASDAQ:VEON). All of these stocks’ market caps resemble PRSP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SVC | 13 | 48463 | 0 |
| TPX | 29 | 1355351 | -4 |
| MSA | 9 | 51906 | -5 |
| VEON | 11 | 44206 | -1 |
| Average | 15.5 | 374982 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $375 million. That figure was $719 million in PRSP’s case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand Mine Safety Appliances (NYSE:MSA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Perspecta Inc. (NYSE:PRSP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on PRSP as the stock returned 63.8% so far in 2019 (through 12/23) 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.
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.
