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Did Hedge Funds Make The Right Call On EPAM Systems Inc (EPAM) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding EPAM Systems Inc (NYSE:EPAM) and determine whether hedge funds had an edge regarding this stock.

Is EPAM Systems Inc (NYSE:EPAM) a first-rate stock to buy now? Investors who are in the know were in a bearish mood. The number of long hedge fund bets were cut by 1 in recent months. Our calculations also showed that EPAM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). EPAM was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. There were 28 hedge funds in our database with EPAM positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

To most market participants, hedge funds are seen as worthless, outdated financial tools of yesteryear. While there are more than 8000 funds trading today, Our experts look at the aristocrats of this group, about 850 funds. These money managers shepherd the lion’s share of the hedge fund industry’s total capital, and by shadowing their matchless investments, Insider Monkey has unearthed various investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the recent hedge fund action encompassing EPAM Systems Inc (NYSE:EPAM).

Hedge fund activity in EPAM Systems Inc (NYSE:EPAM)

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in EPAM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in EPAM Systems Inc (NYSE:EPAM) was held by GQG Partners, which reported holding $137.3 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $82.8 million position. Other investors bullish on the company included Hosking Partners, AQR Capital Management, and Junto Capital Management. In terms of the portfolio weights assigned to each position Sloane Robinson Investment Management allocated the biggest weight to EPAM Systems Inc (NYSE:EPAM), around 6.51% of its 13F portfolio. Prince Street Capital Management is also relatively very bullish on the stock, setting aside 6.22 percent of its 13F equity portfolio to EPAM.

Since EPAM Systems Inc (NYSE:EPAM) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of fund managers that decided to sell off their positions entirely last quarter. Interestingly, Renaissance Technologies dumped the biggest position of all the hedgies monitored by Insider Monkey, valued at an estimated $3.8 million in stock. Peter Muller’s fund, PDT Partners, also cut its stock, about $1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as EPAM Systems Inc (NYSE:EPAM) but similarly valued. We will take a look at Hess Corporation (NYSE:HES), Discovery Inc. (NASDAQ:DISCA), GSX Techedu Inc. (NYSE:GSX), and KeyCorp (NYSE:KEY). This group of stocks’ market values are similar to EPAM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HES 28 253381 -6
DISCA 32 233387 -6
GSX 13 204210 3
KEY 43 348822 7
Average 29 259950 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $339 million in EPAM’s case. KeyCorp (NYSE:KEY) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 13 bullish hedge fund positions. EPAM Systems Inc (NYSE:EPAM) is not the least popular stock in this group but hedge fund interest is still below 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on EPAM as the stock returned 35.7% during the second quarter and outperformed the market by an even larger margin.

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