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Hedge Funds Are Selling ACI Worldwide Inc (ACIW)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards ACI Worldwide Inc (NASDAQ:ACIW) and determine whether hedge funds skillfully traded this stock.

Is ACI Worldwide Inc (NASDAQ:ACIW) going to take off soon? The best stock pickers were getting less bullish. The number of bullish hedge fund positions were trimmed by 2 lately. ACI Worldwide Inc (NASDAQ:ACIW) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 24. Our calculations also showed that ACIW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 24 hedge funds in our database with ACIW positions at the end of the first quarter.

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

At the moment there are numerous tools shareholders have at their disposal to evaluate their stock investments. A duo of the best tools are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the top investment managers can trounce the S&P 500 by a healthy amount (see the details here).

Jeff Smith

Jeffrey Smith of Starboard Value LP

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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a look at the latest hedge fund action encompassing ACI Worldwide Inc (NASDAQ:ACIW).

What does smart money think about ACI Worldwide Inc (NASDAQ:ACIW)?

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in ACIW over the last 20 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Cardinal Capital was the largest shareholder of ACI Worldwide Inc (NASDAQ:ACIW), with a stake worth $120.8 million reported as of the end of September. Trailing Cardinal Capital was Starboard Value LP, which amassed a stake valued at $55.7 million. P2 Capital Partners, Wallace R. Weitz & Co., and Fisher Asset 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 Cardinal Capital allocated the biggest weight to ACI Worldwide Inc (NASDAQ:ACIW), around 5.05% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, designating 4.5 percent of its 13F equity portfolio to ACIW.

Because ACI Worldwide Inc (NASDAQ:ACIW) has faced a decline in interest from the smart money, logic holds that there were a few money managers who sold off their entire stakes last quarter. Interestingly, Spencer M. Waxman’s Shannon River Fund Management said goodbye to the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $18.8 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $0.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to ACI Worldwide Inc (NASDAQ:ACIW). These stocks are New Jersey Resources Corp (NYSE:NJR), Popular Inc (NASDAQ:BPOP), Penske Automotive Group, Inc. (NYSE:PAG), Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), First Horizon National Corporation (NYSE:FHN), TFI International Inc. (NYSE:TFII), and Vicor Corp (NASDAQ:VICR). This group of stocks’ market valuations are similar to ACIW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NJR 14 40053 0
BPOP 33 521258 5
PAG 21 83068 2
AJRD 25 405251 2
FHN 35 384471 4
TFII 10 67009 -2
VICR 19 81691 5
Average 22.4 226114 2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $294 million in ACIW’s case. First Horizon National Corporation (NYSE:FHN) is the most popular stock in this table. On the other hand TFI International Inc. (NYSE:TFII) is the least popular one with only 10 bullish hedge fund positions. ACI Worldwide Inc (NASDAQ:ACIW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ACIW is 54.5. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately ACIW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ACIW investors were disappointed as the stock returned -3.2% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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