Do Hedge Funds Love Pearson PLC (PSO)?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Pearson PLC (NYSE:PSO) makes for a good investment right now.

Pearson PLC (NYSE:PSO) investors should be aware of a decrease in enthusiasm from smart money of late. Pearson PLC (NYSE:PSO) was in 5 hedge funds’ portfolios at the end of September. The all time high for this statistics is 9. There were 7 hedge funds in our database with PSO positions at the end of the second quarter. Our calculations also showed that PSO isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now let’s check out the new hedge fund action encompassing Pearson PLC (NYSE:PSO).

How are hedge funds trading Pearson PLC (NYSE:PSO)?

At third quarter’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PSO over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, 13D Management was the largest shareholder of Pearson PLC (NYSE:PSO), with a stake worth $6.8 million reported as of the end of September. Trailing 13D Management was Renaissance Technologies, which amassed a stake valued at $4.8 million. Citadel Investment Group, Arrowstreet Capital, and D E Shaw 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 13D Management allocated the biggest weight to Pearson PLC (NYSE:PSO), around 2.97% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0048 percent of its 13F equity portfolio to PSO.

Since Pearson PLC (NYSE:PSO) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of money managers who were dropping their full holdings in the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, totaling close to $0.9 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $0.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Pearson PLC (NYSE:PSO). These stocks are CACI International Inc (NYSE:CACI), Planet Fitness Inc (NYSE:PLNT), HUYA Inc. (NYSE:HUYA), Comerica Incorporated (NYSE:CMA), Elbit Systems Ltd. (NASDAQ:ESLT), Canopy Growth Corporation (NASDAQ:CGC), and Woori Financial Group Inc. (NYSE:WF). This group of stocks’ market valuations match PSO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CACI 31 575408 -3
PLNT 45 1552569 1
HUYA 22 390686 1
CMA 30 453794 -6
ESLT 4 10024 0
CGC 9 19074 -2
WF 2 2940 -3
Average 20.4 429214 -1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $429 million. That figure was $16 million in PSO’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 2 bullish hedge fund positions. Pearson PLC (NYSE:PSO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PSO is 23.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on PSO as the stock returned 21.7% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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