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Did Hedge Funds Make The Right Call On Open Text Corporation (OTEX) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtOpen Text Corporation (NASDAQ:OTEX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Open Text Corporation (NASDAQ:OTEX) has seen an increase in hedge fund sentiment recently. Our calculations also showed that OTEX 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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 let’s review the fresh hedge fund action regarding Open Text Corporation (NASDAQ:OTEX).

How are hedge funds trading Open Text Corporation (NASDAQ:OTEX)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OTEX over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is OTEX A Good Stock To Buy?

Among these funds, Praesidium Investment Management Company held the most valuable stake in Open Text Corporation (NASDAQ:OTEX), which was worth $144.3 million at the end of the third quarter. On the second spot was Blue Harbour Group which amassed $115.7 million worth of shares. GLG Partners, Renaissance Technologies, and Sunriver Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Blue Harbour Group allocated the biggest weight to Open Text Corporation (NASDAQ:OTEX), around 20.59% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, designating 11.67 percent of its 13F equity portfolio to OTEX.

Now, key money managers were leading the bulls’ herd. JS Capital, managed by Jonathan Soros, assembled the biggest position in Open Text Corporation (NASDAQ:OTEX). JS Capital had $0.4 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.3 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Matthew Hulsizer’s PEAK6 Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Open Text Corporation (NASDAQ:OTEX) but similarly valued. These stocks are ArcelorMittal (NYSE:MT), Tradeweb Markets Inc. (NASDAQ:TW), Cable One Inc (NYSE:CABO), and Carnival Corporation (NYSE:CCL). All of these stocks’ market caps resemble OTEX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MT 13 123110 -4
TW 30 355406 -6
CABO 23 674859 4
CCL 31 146189 -3
Average 24.25 324891 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $325 million. That figure was $376 million in OTEX’s case. Carnival Corporation (NYSE:CCL) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 13 bullish hedge fund positions. Open Text Corporation (NASDAQ:OTEX) 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 but beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on OTEX, though not to the same extent, as the stock returned 28.9% since Q1 and outperformed the market.

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