We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 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 The Descartes Systems Group Inc (NASDAQ:DSGX).
Is The Descartes Systems Group Inc (NASDAQ:DSGX) ready to rally soon? Prominent investors are becoming hopeful. The number of bullish hedge fund positions increased by 1 recently. Our calculations also showed that DSGX isn’t among the 30 most popular stocks among hedge funds (view the video below).
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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, 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 take a look at the new hedge fund action encompassing The Descartes Systems Group Inc (NASDAQ:DSGX).
How have hedgies been trading The Descartes Systems Group Inc (NASDAQ:DSGX)?
At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the first quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in DSGX a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arrowstreet Capital held the most valuable stake in The Descartes Systems Group Inc (NASDAQ:DSGX), which was worth $45.9 million at the end of the second quarter. On the second spot was Echo Street Capital Management which amassed $38.5 million worth of shares. Moreover, Renaissance Technologies, Royce & Associates, and Millennium Management were also bullish on The Descartes Systems Group Inc (NASDAQ:DSGX), allocating a large percentage of their portfolios to this stock.
Consequently, specific money managers were breaking ground themselves. Element Capital Management, managed by Jeffrey Talpins, assembled the most outsized position in The Descartes Systems Group Inc (NASDAQ:DSGX). Element Capital Management had $1.2 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $1.1 million position during the quarter. The following funds were also among the new DSGX investors: John Overdeck and David Siegel’s Two Sigma Advisors, Benjamin A. Smith’s Laurion Capital Management, and Louis Navellier’s Navellier & Associates.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Descartes Systems Group Inc (NASDAQ:DSGX) but similarly valued. These stocks are AMC Networks Inc (NASDAQ:AMCX), Terreno Realty Corporation (NYSE:TRNO), Sunstone Hotel Investors Inc (NYSE:SHO), and South Jersey Industries Inc (NYSE:SJI). All of these stocks’ market caps resemble DSGX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMCX | 19 | 306968 | -1 |
| TRNO | 9 | 48390 | -4 |
| SHO | 21 | 220719 | 1 |
| SJI | 13 | 69668 | 2 |
| Average | 15.5 | 161436 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $121 million in DSGX’s case. Sunstone Hotel Investors Inc (NYSE:SHO) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 9 bullish hedge fund positions. The Descartes Systems Group Inc (NASDAQ:DSGX) 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 DSGX as the stock returned 9.1% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
