Did Hedge Funds Drop The Ball On Manhattan Associates, Inc. (MANH) ?

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Manhattan Associates, Inc. (NASDAQ:MANH).

Manhattan Associates, Inc. (NASDAQ:MANH) was in 18 hedge funds’ portfolios at the end of March. MANH shareholders have witnessed a decrease in hedge fund interest recently. There were 20 hedge funds in our database with MANH positions at the end of the previous quarter. Our calculations also showed that manh isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Let’s analyze the fresh hedge fund action regarding Manhattan Associates, Inc. (NASDAQ:MANH).

What does the smart money think about Manhattan Associates, Inc. (NASDAQ:MANH)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in MANH over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MANH Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, RGM Capital, managed by Robert G. Moses, holds the number one position in Manhattan Associates, Inc. (NASDAQ:MANH). RGM Capital has a $110.6 million position in the stock, comprising 7.5% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $60 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions consist of Chuck Royce’s Royce & Associates, Noam Gottesman’s GLG Partners and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Judging by the fact that Manhattan Associates, Inc. (NASDAQ:MANH) has witnessed a decline in interest from the smart money, logic holds that there was a specific group of hedge funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Richard S. Meisenberg’s ACK Asset Management said goodbye to the biggest investment of the 700 funds followed by Insider Monkey, comprising close to $2.3 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $1.2 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Manhattan Associates, Inc. (NASDAQ:MANH) but similarly valued. These stocks are Darling Ingredients Inc. (NYSE:DAR), Aaron’s, Inc. (NYSE:AAN), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), and NorthWestern Corporation (NYSE:NWE). All of these stocks’ market caps are closest to MANH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DAR 19 210442 1
AAN 20 244703 -1
RARE 18 319720 4
NWE 15 188627 0
Average 18 240873 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $337 million in MANH’s case. Aaron’s, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand NorthWestern Corporation (NYSE:NWE) is the least popular one with only 15 bullish hedge fund positions. Manhattan Associates, Inc. (NASDAQ:MANH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on MANH as the stock returned 19.3% during the same time frame and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.