Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Pzena Investment Management Inc (NYSE:PZN) changed recently.
Pzena Investment Management Inc (NYSE:PZN) shareholders have witnessed an increase in enthusiasm from smart money in recent months. PZN was in 7 hedge funds’ portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with PZN holdings at the end of the previous quarter. Our calculations also showed that PZN 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.
To most shareholders, hedge funds are seen as worthless, old investment vehicles of yesteryear. While there are greater than 8000 funds in operation at the moment, We look at the masters of this group, around 750 funds. Most estimates calculate that this group of people command most of the smart money’s total capital, and by tailing their finest investments, Insider Monkey has deciphered many investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Mario Gabelli of GAMCO Investors
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 check out the new hedge fund action surrounding Pzena Investment Management Inc (NYSE:PZN).
Hedge fund activity in Pzena Investment Management Inc (NYSE:PZN)
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the second quarter of 2019. By comparison, 4 hedge funds held shares or bullish call options in PZN a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Pzena Investment Management Inc (NYSE:PZN), with a stake worth $9.9 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $9.1 million. GAMCO Investors, Arrowstreet Capital, and Marshall Wace 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 Royce & Associates allocated the biggest weight to Pzena Investment Management Inc (NYSE:PZN), around 0.09% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to PZN.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, created the largest position in Pzena Investment Management Inc (NYSE:PZN). Algert Coldiron Investors had $0.1 million invested in the company at the end of the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Pzena Investment Management Inc (NYSE:PZN) but similarly valued. These stocks are KNOT Offshore Partners LP (NYSE:KNOP), MacroGenics Inc (NASDAQ:MGNX), National Presto Industries Inc. (NYSE:NPK), and TechTarget Inc (NASDAQ:TTGT). This group of stocks’ market values resemble PZN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KNOP | 3 | 21086 | -2 |
| MGNX | 14 | 92212 | -5 |
| NPK | 9 | 70014 | -3 |
| TTGT | 14 | 59178 | -2 |
| Average | 10 | 60623 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $20 million in PZN’s case. MacroGenics Inc (NASDAQ:MGNX) is the most popular stock in this table. On the other hand KNOT Offshore Partners LP (NYSE:KNOP) is the least popular one with only 3 bullish hedge fund positions. Pzena Investment Management Inc (NYSE:PZN) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 PZN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PZN investors were disappointed as the stock returned 0% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
