Hedge Funds Are Dumping Q2 Holdings Inc (QTWO)

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Q2 Holdings Inc (NYSE:QTWO) was in 13 hedge funds’ portfolios at the end of September. QTWO has experienced a decrease in activity from the world’s largest hedge funds in recent months. There were 16 hedge funds in our database with QTWO holdings at the end of the previous quarter. Our calculations also showed that qtwo isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus

Let’s take a gander at the new hedge fund action regarding Q2 Holdings Inc (NYSE:QTWO).

What have hedge funds been doing with Q2 Holdings Inc (NYSE:QTWO)?

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in QTWO over the last 13 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

No of Hedge Funds with QTWO Positions

Among these funds, Columbus Circle Investors held the most valuable stake in Q2 Holdings Inc (NYSE:QTWO), which was worth $18.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $10.3 million worth of shares. Moreover, Driehaus Capital, Citadel Investment Group, and Millennium Management were also bullish on Q2 Holdings Inc (NYSE:QTWO), allocating a large percentage of their portfolios to this stock.

Because Q2 Holdings Inc (NYSE:QTWO) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers who were dropping their full holdings in the third quarter. Interestingly, Brad Farber’s Atika Capital cut the largest investment of the 700 funds monitored by Insider Monkey, valued at about $2.4 million in stock. Chuck Royce’s fund, Royce & Associates, also dropped its stock, about $0.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Q2 Holdings Inc (NYSE:QTWO) but similarly valued. These stocks are Cogent Communications Holdings, Inc. (NASDAQ:CCOI), JELD-WEN Holding, Inc. (NYSE:JELD), Nuveen Quality Municipal Income Fund (NYSE:NAD), and Worthington Industries, Inc. (NYSE:WOR). This group of stocks’ market valuations are closest to QTWO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCOI 12 238935 0
JELD 13 448389 0
NAD 4 2101 1
WOR 10 72428 -2
Average 9.75 190463 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $54 million in QTWO’s case. JELD-WEN Holding, Inc. (NYSE:JELD) is the most popular stock in this table. On the other hand Nuveen Quality Municipal Income Fund (NYSE:NAD) is the least popular one with only 4 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard JELD might be a better candidate to consider a long position.

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