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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in NIC Inc. (NASDAQ:EGOV)? The smart money sentiment can provide an answer to this question.
NIC Inc. (NASDAQ:EGOV) investors should be aware of an increase in hedge fund interest in recent months. Our calculations also showed that EGOV 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).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Steven Cohen of Point72 Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 we’re going to analyze the new hedge fund action regarding NIC Inc. (NASDAQ:EGOV).
How have hedgies been trading NIC Inc. (NASDAQ:EGOV)?
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EGOV over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in NIC Inc. (NASDAQ:EGOV) was held by Renaissance Technologies, which reported holding $34.9 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $21.8 million position. Other investors bullish on the company included D E Shaw, GLG Partners, and Columbus Circle Investors. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to NIC Inc. (NASDAQ:EGOV), around 0.5% of its 13F portfolio. Columbus Circle Investors is also relatively very bullish on the stock, dishing out 0.44 percent of its 13F equity portfolio to EGOV.
Now, key hedge funds have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable position in NIC Inc. (NASDAQ:EGOV). Laurion Capital Management had $0.3 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new EGOV investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors and Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NIC Inc. (NASDAQ:EGOV) but similarly valued. These stocks are Veritex Holdings Inc (NASDAQ:VBTX), Perficient, Inc. (NASDAQ:PRFT), Inogen Inc (NASDAQ:INGN), and Office Depot Inc (NASDAQ:ODP). All of these stocks’ market caps are closest to EGOV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VBTX | 10 | 89499 | 0 |
| PRFT | 23 | 95456 | 8 |
| INGN | 21 | 169724 | 4 |
| ODP | 16 | 104972 | 0 |
| Average | 17.5 | 114913 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $126 million in EGOV’s case. Perficient, Inc. (NASDAQ:PRFT) is the most popular stock in this table. On the other hand Veritex Holdings Inc (NASDAQ:VBTX) is the least popular one with only 10 bullish hedge fund positions. NIC Inc. (NASDAQ:EGOV) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on EGOV as the stock returned 7.1% in 2020 (through May 1st) 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.
