We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether The Descartes Systems Group Inc (NASDAQ:DSGX) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
The Descartes Systems Group Inc (NASDAQ:DSGX) has seen a decrease in support from the world’s most elite money managers lately. DSGX was in 12 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 14 hedge funds in our database with DSGX positions at the end of the previous quarter. Our calculations also showed that DSGX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the new hedge fund action regarding The Descartes Systems Group Inc (NASDAQ:DSGX).
How have hedgies been trading The Descartes Systems Group Inc (NASDAQ:DSGX)?
Heading into the first quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DSGX over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Greg Poole’s Echo Street Capital Management has the number one position in The Descartes Systems Group Inc (NASDAQ:DSGX), worth close to $59.4 million, accounting for 0.9% of its total 13F portfolio. On Echo Street Capital Management’s heels is Renaissance Technologies, which holds a $18 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions contain Chuck Royce’s Royce & Associates, Charles Akre’s Akre Capital Management and Alexander Mitchell’s Scopus Asset Management. In terms of the portfolio weights assigned to each position Signition LP allocated the biggest weight to The Descartes Systems Group Inc (NASDAQ:DSGX), around 1.11% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, earmarking 0.91 percent of its 13F equity portfolio to DSGX.
Seeing as The Descartes Systems Group Inc (NASDAQ:DSGX) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers that decided to sell off their full holdings last quarter. It’s worth mentioning that Israel Englander’s Millennium Management dumped the biggest stake of the 750 funds followed by Insider Monkey, totaling an estimated $5 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $1.8 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds last quarter.
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 Embraer SA (NYSE:ERJ), National Health Investors Inc (NYSE:NHI), Exponent, Inc. (NASDAQ:EXPO), and FireEye Inc (NASDAQ:FEYE). All of these stocks’ market caps match DSGX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ERJ | 14 | 170112 | -1 |
| NHI | 15 | 143101 | -2 |
| EXPO | 17 | 110746 | -4 |
| FEYE | 30 | 267777 | 1 |
| Average | 19 | 172934 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $97 million in DSGX’s case. FireEye Inc (NASDAQ:FEYE) is the most popular stock in this table. On the other hand Embraer SA (NYSE:ERJ) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks The Descartes Systems Group Inc (NASDAQ:DSGX) is even less popular than ERJ. Hedge funds dodged a bullet by taking a bearish stance towards DSGX. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately DSGX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DSGX investors were disappointed as the stock returned -24.4% 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 most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
