Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Simulations Plus, Inc. (NASDAQ:SLP).
Simulations Plus, Inc. (NASDAQ:SLP) investors should be aware of an increase in enthusiasm from smart money lately. Our calculations also showed that SLP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the new hedge fund action encompassing Simulations Plus, Inc. (NASDAQ:SLP).
What does smart money think about Simulations Plus, Inc. (NASDAQ:SLP)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 56% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SLP over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Simulations Plus, Inc. (NASDAQ:SLP), with a stake worth $17.4 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $10.7 million. Arrowstreet Capital, Winton Capital Management, and Ancora Advisors 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 Algert Coldiron Investors allocated the biggest weight to Simulations Plus, Inc. (NASDAQ:SLP), around 0.54% of its 13F portfolio. Caxton Associates is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to SLP.
Consequently, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the biggest position in Simulations Plus, Inc. (NASDAQ:SLP). Citadel Investment Group had $1.1 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0.6 million position during the quarter. The other funds with brand new SLP positions are Louis Navellier’s Navellier & Associates, David E. Shaw’s D E Shaw, and Donald Sussman’s Paloma Partners.
Let’s go over hedge fund activity in other stocks similar to Simulations Plus, Inc. (NASDAQ:SLP). These stocks are Evolent Health Inc (NYSE:EVH), United Natural Foods, Inc. (NYSE:UNFI), Agilysys, Inc. (NASDAQ:AGYS), and United Insurance Holdings Corp. (NASDAQ:UIHC). This group of stocks’ market caps are closest to SLP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EVH | 16 | 115507 | 0 |
| UNFI | 10 | 35452 | -4 |
| AGYS | 16 | 128890 | 3 |
| UIHC | 11 | 13753 | 3 |
| Average | 13.25 | 73401 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $40 million in SLP’s case. Evolent Health Inc (NYSE:EVH) is the most popular stock in this table. On the other hand United Natural Foods, Inc. (NYSE:UNFI) is the least popular one with only 10 bullish hedge fund positions. Simulations Plus, Inc. (NASDAQ:SLP) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SLP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SLP were disappointed as the stock returned -3.5% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
