Did Hedge Funds Drop The Ball On Q2 Holdings Inc (QTWO)?

Does Q2 Holdings Inc (NYSE:QTWO) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Q2 Holdings Inc (NYSE:QTWO) a healthy stock for your portfolio? Prominent investors are turning less bullish. The number of bullish hedge fund bets went down by 1 recently. Our calculations also showed that QTWO isn’t among the 30 most popular stocks among hedge funds.

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’ 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

D. E. Shaw

We’re going to review the key hedge fund action surrounding Q2 Holdings Inc (NYSE:QTWO).

How are hedge funds trading Q2 Holdings Inc (NYSE:QTWO)?

At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in QTWO over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, Columbus Circle Investors held the most valuable stake in Q2 Holdings Inc (NYSE:QTWO), which was worth $18.4 million at the end of December. On the second spot was Citadel Investment Group which amassed $11.4 million worth of shares. Moreover, Balyasny Asset Management, Tremblant Capital, and D E Shaw were also bullish on Q2 Holdings Inc (NYSE:QTWO), allocating a large percentage of their portfolios to this stock.

Due to the fact that Q2 Holdings Inc (NYSE:QTWO) has faced a decline in interest from hedge fund managers, we can see that there was a specific group of funds who were dropping their full holdings in the third quarter. Interestingly, Jim Simons’s Renaissance Technologies cut the biggest investment of the 700 funds watched by Insider Monkey, comprising close to $10.3 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund sold off about $9.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Q2 Holdings Inc (NYSE:QTWO) but similarly valued. We will take a look at Global Blood Therapeutics Inc (NASDAQ:GBT), Companhia Paranaense de Energia – COPEL (NYSE:ELP), KBR, Inc. (NYSE:KBR), and PotlatchDeltic Corporation (NASDAQ:PCH). This group of stocks’ market values match QTWO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GBT 25 545078 0
ELP 8 34642 0
KBR 26 345110 7
PCH 15 279786 -1
Average 18.5 301154 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $50 million in QTWO’s case. KBR, Inc. (NYSE:KBR) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia – COPEL (NYSE:ELP) is the least popular one with only 8 bullish hedge fund positions. Q2 Holdings Inc (NYSE:QTWO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on QTWO as the stock returned 41.3% and outperformed the market by an even larger margin.

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