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 nearly 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.
Guidewire Software Inc (NYSE:GWRE) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that GWRE isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action surrounding Guidewire Software Inc (NYSE:GWRE).
How are hedge funds trading Guidewire Software Inc (NYSE:GWRE)?
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in GWRE a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Guidewire Software Inc (NYSE:GWRE) was held by D1 Capital Partners, which reported holding $238.8 million worth of stock at the end of March. It was followed by Stockbridge Partners with a $212.1 million position. Other investors bullish on the company included Cadian Capital, Shannon River Fund Management, and Bares Capital Management.
Due to the fact that Guidewire Software Inc (NYSE:GWRE) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers who were dropping their full holdings in the second quarter. Intriguingly, Keith Meister’s Corvex Capital sold off the biggest stake of the 750 funds followed by Insider Monkey, valued at close to $37.5 million in stock, and Guy Shahar’s DSAM Partners was right behind this move, as the fund said goodbye to about $23.1 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds in the second quarter.
Let’s go over 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 ICON Public Limited Company (NASDAQ:ICLR), Woori Financial Group Inc. (NYSE:WF), Coupa Software Incorporated (NASDAQ:COUP), and ON Semiconductor Corporation (NASDAQ:ON). This group of stocks’ market values are closest to GWRE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ICLR | 19 | 828062 | -8 |
| WF | 1 | 1327 | 0 |
| COUP | 57 | 2232647 | 16 |
| ON | 26 | 525773 | -13 |
| Average | 25.75 | 896952 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $897 million. That figure was $692 million in GWRE’s case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 1 bullish hedge fund positions. Guidewire Software Inc (NYSE:GWRE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on GWRE, though not to the same extent, as the stock returned 3.9% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
