The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Jack Henry & Associates, Inc. (NASDAQ:JKHY) based on those filings.
Hedge fund interest in Jack Henry & Associates, Inc. (NASDAQ:JKHY) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare JKHY to other stocks including Tiffany & Co. (NYSE:TIF), Zebra Technologies Corporation (NASDAQ:ZBRA), and NiSource Inc. (NYSE:NI) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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 stocks that are in our short portfolio.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the new hedge fund action surrounding Jack Henry & Associates, Inc. (NASDAQ:JKHY).
Hedge fund activity in Jack Henry & Associates, Inc. (NASDAQ:JKHY)
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in JKHY a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Jack Henry & Associates, Inc. (NASDAQ:JKHY), which was worth $31.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $30.3 million worth of shares. Adage Capital Management, Royce & Associates, and Echo Street Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Bishop Rock Capital allocated the biggest weight to Jack Henry & Associates, Inc. (NASDAQ:JKHY), around 4.69% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, designating 0.32 percent of its 13F equity portfolio to JKHY.
Since Jack Henry & Associates, Inc. (NASDAQ:JKHY) has experienced bearish sentiment from the smart money, it’s easy to see that there was a specific group of fund managers that decided to sell off their full holdings heading into Q4. Interestingly, Sander Gerber’s Hudson Bay Capital Management sold off the largest investment of the “upper crust” of funds followed by Insider Monkey, worth about $13.3 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dropped its stock, about $1.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Jack Henry & Associates, Inc. (NASDAQ:JKHY). These stocks are Tiffany & Co. (NYSE:TIF), Zebra Technologies Corporation (NASDAQ:ZBRA), NiSource Inc. (NYSE:NI), and Rollins, Inc. (NYSE:ROL). This group of stocks’ market valuations are closest to JKHY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TIF | 30 | 1500513 | 8 |
| ZBRA | 18 | 427751 | -2 |
| NI | 22 | 811933 | 0 |
| ROL | 25 | 306391 | 2 |
| Average | 23.75 | 761647 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $762 million. That figure was $181 million in JKHY’s case. Tiffany & Co. (NYSE:TIF) is the most popular stock in this table. On the other hand Zebra Technologies Corporation (NASDAQ:ZBRA) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Jack Henry & Associates, Inc. (NASDAQ:JKHY) is even less popular than ZBRA. Hedge funds dodged a bullet by taking a bearish stance towards JKHY. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately JKHY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); JKHY investors were disappointed as the stock returned 4.4% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
