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Did Hedge Funds Make The Right Call On Evertec Inc (EVTC) ?

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 Evertec Inc (NYSE:EVTC) and determine whether hedge funds had an edge regarding this stock.

Hedge fund interest in Evertec Inc (NYSE:EVTC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Capitol Federal Financial, Inc. (NASDAQ:CFFN), CONMED Corporation (NYSE:CNMD), and Acadia Healthcare Company Inc (NASDAQ:ACHC) to gather more data points. Our calculations also showed that EVTC 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).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to check out the latest hedge fund action regarding Evertec Inc (NYSE:EVTC).

What have hedge funds been doing with Evertec Inc (NYSE:EVTC)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in EVTC a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in Evertec Inc (NYSE:EVTC) was held by Rivulet Capital, which reported holding $102.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $53.6 million position. Other investors bullish on the company included GLG Partners, Arrowstreet Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Rivulet Capital allocated the biggest weight to Evertec Inc (NYSE:EVTC), around 6.55% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.19 percent of its 13F equity portfolio to EVTC.

Due to the fact that Evertec Inc (NYSE:EVTC) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds that slashed their full holdings last quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest position of the 750 funds tracked by Insider Monkey, comprising close to $2.6 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund dropped about $1.8 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Evertec Inc (NYSE:EVTC). We will take a look at Capitol Federal Financial, Inc. (NASDAQ:CFFN), CONMED Corporation (NYSE:CNMD), Acadia Healthcare Company Inc (NASDAQ:ACHC), and Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). This group of stocks’ market values are similar to EVTC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CFFN 11 108700 -5
CNMD 29 207132 -2
ACHC 24 272616 -4
AUPH 28 482900 7
Average 23 267837 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $268 million. That figure was $198 million in EVTC’s case. CONMED Corporation (NYSE:CNMD) is the most popular stock in this table. On the other hand Capitol Federal Financial, Inc. (NASDAQ:CFFN) is the least popular one with only 11 bullish hedge fund positions. Evertec Inc (NYSE:EVTC) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on EVTC as the stock returned 38.1% since the end of March and outperformed the market by an even larger margin.

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