We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like QAD Inc. (NASDAQ:QADA).
QAD Inc. (NASDAQ:QADA) shareholders have witnessed an increase in hedge fund interest lately. QADA was in 14 hedge funds’ portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with QADA holdings at the end of the previous quarter. Our calculations also showed that QADA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 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.
David Atterbury of Whetstone Capital Advisors
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. Let’s take a look at the new hedge fund action surrounding QAD Inc. (NASDAQ:QADA).
Hedge fund activity in QAD Inc. (NASDAQ:QADA)
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in QADA over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Nantahala Capital Management was the largest shareholder of QAD Inc. (NASDAQ:QADA), with a stake worth $57.8 million reported as of the end of September. Trailing Nantahala Capital Management was Renaissance Technologies, which amassed a stake valued at $28.5 million. Royce & Associates, Whetstone Capital Advisors, and Rutabaga 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 Whetstone Capital Advisors allocated the biggest weight to QAD Inc. (NASDAQ:QADA), around 3% of its 13F portfolio. Nantahala Capital Management is also relatively very bullish on the stock, setting aside 2.14 percent of its 13F equity portfolio to QADA.
As one would reasonably expect, key hedge funds were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, initiated the most outsized position in QAD Inc. (NASDAQ:QADA). Point72 Asset Management had $2.9 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $1.2 million investment in the stock during the quarter. The following funds were also among the new QADA investors: Matthew Hulsizer’s PEAK6 Capital Management, Roger Ibbotson’s Zebra Capital Management, and Robert Rodriguez and Steven Romick’s First Pacific Advisors.
Let’s now review hedge fund activity in other stocks similar to QAD Inc. (NASDAQ:QADA). These stocks are Athenex, Inc. (NASDAQ:ATNX), Epizyme Inc (NASDAQ:EPZM), Third Point Reinsurance Ltd (NYSE:TPRE), and Amphastar Pharmaceuticals Inc (NASDAQ:AMPH). All of these stocks’ market caps resemble QADA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATNX | 15 | 276846 | 5 |
| EPZM | 17 | 265859 | -4 |
| TPRE | 19 | 68008 | -1 |
| AMPH | 9 | 36976 | 0 |
| Average | 15 | 161922 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $128 million in QADA’s case. Third Point Reinsurance Ltd (NYSE:TPRE) is the most popular stock in this table. On the other hand Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) is the least popular one with only 9 bullish hedge fund positions. QAD Inc. (NASDAQ:QADA) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on QADA as the stock returned 10.7% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
