It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 Papa John’s International, Inc. (NASDAQ:PZZA).
Is Papa John’s International, Inc. (NASDAQ:PZZA) ready to rally soon? Investors who are in the know are in a bullish mood. The number of bullish hedge fund bets moved up by 2 recently. Our calculations also showed that PZZA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). PZZA was in 24 hedge funds’ portfolios at the end of September. There were 22 hedge funds in our database with PZZA positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we’re going to take a glance at the key hedge fund action encompassing Papa John’s International, Inc. (NASDAQ:PZZA).
How are hedge funds trading Papa John’s International, Inc. (NASDAQ:PZZA)?
At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PZZA 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, Legion Partners Asset Management was the largest shareholder of Papa John’s International, Inc. (NASDAQ:PZZA), with a stake worth $90.4 million reported as of the end of September. Trailing Legion Partners Asset Management was Bares Capital Management, which amassed a stake valued at $75.8 million. Renaissance Technologies, Citadel Investment Group, and 13D 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 Legion Partners Asset Management allocated the biggest weight to Papa John’s International, Inc. (NASDAQ:PZZA), around 22.17% of its 13F portfolio. Litespeed Management is also relatively very bullish on the stock, designating 8.95 percent of its 13F equity portfolio to PZZA.
As industrywide interest jumped, key hedge funds have jumped into Papa John’s International, Inc. (NASDAQ:PZZA) headfirst. Dorsal Capital Management, managed by Ryan Frick and Oliver Evans, created the most outsized position in Papa John’s International, Inc. (NASDAQ:PZZA). Dorsal Capital Management had $18.3 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $12.3 million investment in the stock during the quarter. The following funds were also among the new PZZA investors: Principal Global Investors’s Columbus Circle Investors, Joseph Mathias’s Concourse Capital Management, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors.
Let’s go over hedge fund activity in other stocks similar to Papa John’s International, Inc. (NASDAQ:PZZA). These stocks are Arcosa, Inc. (NYSE:ACA), Focus Financial Partners Inc. (NASDAQ:FOCS), Fresh Del Monte Produce Inc (NYSE:FDP), and Global Net Lease, Inc. (NYSE:GNL). This group of stocks’ market valuations are similar to PZZA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ACA | 27 | 234791 | 3 |
| FOCS | 10 | 43591 | 1 |
| FDP | 11 | 53395 | 0 |
| GNL | 12 | 74097 | 4 |
| Average | 15 | 101469 | 2 |
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 $101 million. That figure was $383 million in PZZA’s case. Arcosa, Inc. (NYSE:ACA) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 10 bullish hedge fund positions. Papa John’s International, Inc. (NASDAQ:PZZA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on PZZA as the stock returned 61.5% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
