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 Paysign, Inc. (NASDAQ:PAYS) and determine whether the smart money was really smart about this stock.
Is Paysign, Inc. (NASDAQ:PAYS) a buy, sell, or hold? Money managers were reducing their bets on the stock. The number of long hedge fund positions shrunk by 4 lately. Our calculations also showed that PAYS 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the key hedge fund action encompassing Paysign, Inc. (NASDAQ:PAYS).
What have hedge funds been doing with Paysign, Inc. (NASDAQ:PAYS)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in PAYS a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Paysign, Inc. (NASDAQ:PAYS) was held by Renaissance Technologies, which reported holding $9.7 million worth of stock at the end of September. It was followed by Think Investments with a $1.6 million position. Other investors bullish on the company included Raging Capital Management, OZ Management, and Navellier & Associates. In terms of the portfolio weights assigned to each position Raging Capital Management allocated the biggest weight to Paysign, Inc. (NASDAQ:PAYS), around 0.65% of its 13F portfolio. Think Investments is also relatively very bullish on the stock, earmarking 0.59 percent of its 13F equity portfolio to PAYS.
Judging by the fact that Paysign, Inc. (NASDAQ:PAYS) has experienced bearish sentiment from the smart money, we can see that there exists a select few funds that decided to sell off their positions entirely in the first quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest position of all the hedgies watched by Insider Monkey, comprising an estimated $0.7 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dropped about $0.5 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds in the first quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Paysign, Inc. (NASDAQ:PAYS) but similarly valued. We will take a look at OneSpaWorld Holdings Limited (NASDAQ:OSW), Civista Bancshares, Inc. (NASDAQ:CIVB), Consolidated Water Co. Ltd. (NASDAQ:CWCO), and Cross Country Healthcare, Inc. (NASDAQ:CCRN). This group of stocks’ market valuations are closest to PAYS’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $15 million in PAYS’s case. OneSpaWorld Holdings Limited (NASDAQ:OSW) is the most popular stock in this table. On the other hand Consolidated Water Co. Ltd. (NASDAQ:CWCO) is the least popular one with only 5 bullish hedge fund positions. Paysign, Inc. (NASDAQ:PAYS) 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on PAYS as the stock returned 88.2% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.