We can judge whether Q2 Holdings Inc (NYSE:QTWO) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Q2 Holdings Inc (NYSE:QTWO) a bargain? Hedge funds are becoming more confident. The number of bullish hedge fund positions rose by 6 in recent months. Our calculations also showed that QTWO isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the fresh hedge fund action encompassing Q2 Holdings Inc (NYSE:QTWO).
What have hedge funds been doing with Q2 Holdings Inc (NYSE:QTWO)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards QTWO over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Brett Barakett’s Tremblant Capital has the most valuable position in Q2 Holdings Inc (NYSE:QTWO), worth close to $38.8 million, accounting for 2.4% of its total 13F portfolio. Sitting at the No. 2 spot is Principal Global Investors of Columbus Circle Investors, with a $27.5 million position; 0.7% of its 13F portfolio is allocated to the stock. Other peers that hold long positions contain Louis Bacon’s Moore Global Investments, Benjamin A. Smith’s Laurion Capital Management and Nick Niell’s Arrowgrass Capital Partners.
Consequently, key hedge funds have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, initiated the biggest position in Q2 Holdings Inc (NYSE:QTWO). Moore Global Investments had $24.8 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $3.4 million investment in the stock during the quarter. The other funds with brand new QTWO positions are Nick Niell’s Arrowgrass Capital Partners, David Costen Haley’s HBK Investments, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now review hedge fund activity in other stocks similar to Q2 Holdings Inc (NYSE:QTWO). These stocks are Envestnet Inc (NYSE:ENV), BRP Inc. (NASDAQ:DOOO), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), and Verint Systems Inc. (NASDAQ:VRNT). This group of stocks’ market valuations are similar to QTWO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENV | 13 | 107070 | -4 |
| DOOO | 10 | 73075 | 0 |
| RARE | 16 | 249429 | -2 |
| VRNT | 23 | 424457 | 1 |
| Average | 15.5 | 213508 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $114 million in QTWO’s case. Verint Systems Inc. (NASDAQ:VRNT) is the most popular stock in this table. On the other hand BRP Inc. (NASDAQ:DOOO) is the least popular one with only 10 bullish hedge fund positions. Q2 Holdings Inc (NYSE:QTWO) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on QTWO, though not to the same extent, as the stock returned 3.3% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
