Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: CDK Global Inc (NASDAQ:CDK).
Is CDK Global Inc (NASDAQ:CDK) a bargain? The smart money is in a pessimistic mood. The number of bullish hedge fund positions shrunk by 4 in recent months. CDK Global Inc (NASDAQ:CDK) was in 41 hedge funds’ portfolios at the end of the third quarter of 2015. There were 45 hedge funds in our database with CDK Global Inc (NASDAQ:CDK) holdings at the end of the previous quarter. At the end of this article, we will also compare CDK Global Inc (NASDAQ:CDK) to other stocks including Acuity Brands, Inc. (NYSE:AYI), E*TRADE Financial Corporation (NASDAQ:ETFC), and Oneok Partners LP (NYSE:OKS) to get a better sense of its popularity.
Follow Cdk Global Inc. (NASDAQ:CDK)
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To most shareholders, hedge funds are viewed as underperforming, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation at the moment, our experts look at the aristocrats of this group, about 700 funds. Most estimates calculate that this group of people orchestrates the bulk of the smart money’s total asset base, and by tracking their best picks, Insider Monkey has figured out various investment strategies that have historically exceeded the market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points per annum for a decade in their back tests.
Now, let’s take a peek at the latest action regarding CDK Global Inc (NASDAQ:CDK).
What does the smart money think about CDK Global Inc (NASDAQ:CDK)?
Heading into Q4, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 9% from the previous quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund holdings data compiled by Insider Monkey, Scott Ferguson’s Sachem Head Capital had the number one position in CDK Global Inc (NASDAQ:CDK), worth close to $565.7 million, accounting for 25.5% of its total 13F portfolio. Sitting at the No. 2 spot is Fir Tree, led by Jeffrey Tannenbaum, holding a $512.4 million position; 8.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds with similar optimism consist of Paul Singer’s Elliott Management, John Griffin’s Blue Ridge Capital and William B. Gray’s Orbis Investment Management.
Because CDK Global Inc (NASDAQ:CDK) has faced falling interest from hedge fund managers, we can see that there is a sect of hedge funds who were dropping their positions entirely last quarter. Interestingly, Ben Gambill’s Tiger Eye Capital sold off the biggest stake of all the hedgies followed by Insider Monkey, comprising close to $42.4 million in stock, and Alok Agrawal of Bloom Tree Partners was right behind this move, as the fund sold off about $37.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to CDK Global Inc (NASDAQ:CDK). We will take a look at Acuity Brands, Inc. (NYSE:AYI), E*TRADE Financial Corporation (NASDAQ:ETFC), Oneok Partners LP (NYSE:OKS), and Turkcell Iletisim Hizmetleri A.S. (ADR) (NYSE:TKC). This group of stocks’ market values match CDK Global Inc (NASDAQ:CDK)’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AYI | 33 | 291886 | 6 |
| ETFC | 54 | 1048375 | 3 |
| OKS | 8 | 35260 | -1 |
| TKC | 7 | 27743 | 0 |
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. In comparison, CDK witnessed a hedge fund interest above average, while the aggregate value of the hedge funds’ holdings stood at $2.74 billion at the end of September. This is a slightly positive signal, but a further research is required to assess the profitability of investing in CDK Global.
