Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Bottomline Technologies (NASDAQ:EPAY).
Bottomline Technologies (NASDAQ:EPAY) investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. EPAY was in 17 hedge funds’ portfolios at the end of December. There were 22 hedge funds in our database with EPAY positions at the end of the previous quarter. Our calculations also showed that EPAY 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).
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 was able to identify in advance a select group of hedge fund holdings that 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.
Louis Bacon Moore of Moore Capital
Now we’re going to analyze the new hedge fund action encompassing Bottomline Technologies (NASDAQ:EPAY).
How have hedgies been trading Bottomline Technologies (NASDAQ:EPAY)?
At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in EPAY a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Richard Merage’s MIG Capital has the number one position in Bottomline Technologies (NASDAQ:EPAY), worth close to $40.1 million, accounting for 4.4% of its total 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $27.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism contain Ravee Mehta’s Nishkama Capital, and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Nishkama Capital allocated the biggest weight to Bottomline Technologies (NASDAQ:EPAY), around 13.73% of its 13F portfolio. MIG Capital is also relatively very bullish on the stock, dishing out 4.4 percent of its 13F equity portfolio to EPAY.
Judging by the fact that Bottomline Technologies (NASDAQ:EPAY) has faced a decline in interest from the smart money, we can see that there were a few hedgies that slashed their entire stakes by the end of the third quarter. Interestingly, Renaissance Technologies dropped the largest investment of all the hedgies tracked by Insider Monkey, valued at about $8.4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $6.5 million worth. These moves are important to note, as total hedge fund interest was cut by 5 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Bottomline Technologies (NASDAQ:EPAY) but similarly valued. These stocks are JELD-WEN Holding, Inc. (NYSE:JELD), Alamos Gold Inc (NYSE:AGI), Aurora Cannabis Inc. (NYSE:ACB), and Washington Real Estate Investment Trust (NYSE:WRE). This group of stocks’ market caps match EPAY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JELD | 29 | 333396 | 15 |
| AGI | 16 | 240507 | 0 |
| ACB | 12 | 19142 | 1 |
| WRE | 9 | 128480 | 4 |
| Average | 16.5 | 180381 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $132 million in EPAY’s case. JELD-WEN Holding, Inc. (NYSE:JELD) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 9 bullish hedge fund positions. Bottomline Technologies (NASDAQ:EPAY) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately EPAY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EPAY were disappointed as the stock returned -35.1% 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 many of these stocks already outperformed the market so far this year.
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.
