How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Jack Henry & Associates, Inc. (NASDAQ:JKHY).
Jack Henry & Associates, Inc. (NASDAQ:JKHY) was in 17 hedge funds’ portfolios at the end of the first quarter of 2019. JKHY shareholders have witnessed a decrease in hedge fund sentiment in recent months. There were 21 hedge funds in our database with JKHY positions at the end of the previous quarter. Our calculations also showed that jkhy isn’t among the 30 most popular stocks among hedge funds.
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.
We’re going to review the fresh hedge fund action surrounding Jack Henry & Associates, Inc. (NASDAQ:JKHY).
How are hedge funds trading Jack Henry & Associates, Inc. (NASDAQ:JKHY)?
Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards JKHY over the last 15 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Balyasny Asset Management, managed by Dmitry Balyasny, holds the number one position in Jack Henry & Associates, Inc. (NASDAQ:JKHY). Balyasny Asset Management has a $46.8 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is Cliff Asness of AQR Capital Management, with a $31.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Chuck Royce’s Royce & Associates, D. E. Shaw’s D E Shaw and Thomas Rigo’s Bishop Rock Capital.
Because Jack Henry & Associates, Inc. (NASDAQ:JKHY) has experienced a decline in interest from hedge fund managers, it’s safe to say that there was a specific group of hedge funds who sold off their full holdings by the end of the third quarter. Intriguingly, Israel Englander’s Millennium Management cut the biggest stake of the 700 funds tracked by Insider Monkey, worth close to $18.2 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $5.8 million worth. These transactions are interesting, as total hedge fund interest fell by 4 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Jack Henry & Associates, Inc. (NASDAQ:JKHY). We will take a look at Hasbro, Inc. (NASDAQ:HAS), PerkinElmer, Inc. (NYSE:PKI), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and China Southern Airlines Company Limited (NYSE:ZNH). This group of stocks’ market values are similar to JKHY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HAS | 18 | 249772 | -1 |
| PKI | 25 | 1117960 | 6 |
| TTWO | 50 | 1424808 | -8 |
| ZNH | 3 | 18911 | -1 |
| Average | 24 | 702863 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $703 million. That figure was $179 million in JKHY’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand China Southern Airlines Company Limited (NYSE:ZNH) is the least popular one with only 3 bullish hedge fund positions. Jack Henry & Associates, Inc. (NASDAQ:JKHY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately JKHY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); JKHY investors were disappointed as the stock returned -0.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
