Did Hedge Funds Make The Right Call On Q2 Holdings Inc (QTWO)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Q2 Holdings Inc (NYSE:QTWO) and determine whether the smart money was really smart about this stock.

Is Q2 Holdings Inc (NYSE:QTWO) a safe investment today? Money managers were getting less optimistic. The number of bullish hedge fund bets fell by 2 recently. Our calculations also showed that QTWO 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). QTWO was in 18 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with QTWO holdings at the end of the previous quarter.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.


Louis Bacon Moore of Moore Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Q2 Holdings Inc (NYSE:QTWO).

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

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the fourth quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in QTWO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is QTWO A Good Stock To Buy?

More specifically, Adams Street Partners was the largest shareholder of Q2 Holdings Inc (NYSE:QTWO), with a stake worth $93.2 million reported as of the end of September. Trailing Adams Street Partners was Tremblant Capital, which amassed a stake valued at $64.1 million. Columbus Circle Investors, Cota Capital, and Zevenbergen Capital Investments 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 Adams Street Partners allocated the biggest weight to Q2 Holdings Inc (NYSE:QTWO), around 23.24% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, designating 8.07 percent of its 13F equity portfolio to QTWO.

Seeing as Q2 Holdings Inc (NYSE:QTWO) has experienced declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their full holdings heading into Q4. At the top of the heap, Noam Gottesman’s GLG Partners cut the biggest stake of all the hedgies followed by Insider Monkey, totaling close to $19.1 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $13.9 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Q2 Holdings Inc (NYSE:QTWO). These stocks are UniFirst Corp (NYSE:UNF), Watts Water Technologies Inc (NYSE:WTS), Avista Corp (NYSE:AVA), and Hamilton Lane Incorporated (NASDAQ:HLNE). This group of stocks’ market values are similar to QTWO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNF 17 75902 -4
WTS 19 237163 0
AVA 18 145437 3
HLNE 9 68042 -1
Average 15.75 131636 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $218 million in QTWO’s case. Watts Water Technologies Inc (NYSE:WTS) is the most popular stock in this table. On the other hand Hamilton Lane Incorporated (NASDAQ:HLNE) is the least popular one with only 9 bullish hedge fund positions. Q2 Holdings Inc (NYSE:QTWO) is not the most popular stock in this group but hedge fund interest is still above 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 still beat the market by 17.1 percentage points. Hedge funds were also right about betting on QTWO as the stock returned 59.9% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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