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. Is Insight Enterprises, Inc. (NASDAQ:NSIT) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Insight Enterprises, Inc. (NASDAQ:NSIT) the right pick for your portfolio? Prominent investors are selling. The number of long hedge fund bets dropped by 3 lately. Our calculations also showed that NSIT 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).
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 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 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 stocks that are in our short portfolio.
Chuck Royce of Royce & Associates
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 take a peek at the latest hedge fund action encompassing Insight Enterprises, Inc. (NASDAQ:NSIT).
Hedge fund activity in Insight Enterprises, Inc. (NASDAQ:NSIT)
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the third quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in NSIT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Insight Enterprises, Inc. (NASDAQ:NSIT) was held by Royce & Associates, which reported holding $38.2 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $20.5 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Insight Enterprises, Inc. (NASDAQ:NSIT), around 1.31% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.34 percent of its 13F equity portfolio to NSIT.
Judging by the fact that Insight Enterprises, Inc. (NASDAQ:NSIT) has experienced bearish sentiment from hedge fund managers, logic holds that there exists a select few hedgies that slashed their positions entirely by the end of the third quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest stake of the 750 funds watched by Insider Monkey, valued at close to $9 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also sold off its stock, about $0.8 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Insight Enterprises, Inc. (NASDAQ:NSIT) but similarly valued. These stocks are Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), Herman Miller, Inc. (NASDAQ:MLHR), American Eagle Outfitters Inc. (NYSE:AEO), and Albany International Corp. (NYSE:AIN). This group of stocks’ market caps resemble NSIT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RARE | 18 | 210193 | -1 |
| MLHR | 24 | 213274 | -4 |
| AEO | 24 | 297377 | -5 |
| AIN | 19 | 96389 | 5 |
| Average | 21.25 | 204308 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $126 million in NSIT’s case. Herman Miller, Inc. (NASDAQ:MLHR) is the most popular stock in this table. On the other hand Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Insight Enterprises, Inc. (NASDAQ:NSIT) is even less popular than RARE. Hedge funds dodged a bullet by taking a bearish stance towards NSIT. 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 NSIT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NSIT investors were disappointed as the stock returned -42.7% 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.
