Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Euronet Worldwide, Inc. (NASDAQ:EEFT).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We’re going to take a look at the new hedge fund action surrounding Euronet Worldwide, Inc. (NASDAQ:EEFT).
How are hedge funds trading Euronet Worldwide, Inc. (NASDAQ:EEFT)?
At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EEFT over the last 15 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Columbus Circle Investors held the most valuable stake in Euronet Worldwide, Inc. (NASDAQ:EEFT), which was worth $40.4 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $38.7 million worth of shares. Moreover, Arrowstreet Capital, Portolan Capital Management, and Crosslink Capital were also bullish on Euronet Worldwide, Inc. (NASDAQ:EEFT), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in Euronet Worldwide, Inc. (NASDAQ:EEFT). Arrowstreet Capital had $36.8 million invested in the company at the end of the quarter. Andrew Weiss’s Weiss Asset Management also made a $23.1 million investment in the stock during the quarter. The other funds with brand new EEFT positions are Andrew Weiss’s Weiss Asset Management, Nick Niell’s Arrowgrass Capital Partners, and Vikas Lunia’s Lunia Capital.
Let’s also examine hedge fund activity in other stocks similar to Euronet Worldwide, Inc. (NASDAQ:EEFT). These stocks are Sensata Technologies Holding plc (NYSE:ST), Macy’s, Inc. (NYSE:M), Crown Holdings, Inc. (NYSE:CCK), and ICON Public Limited Company (NASDAQ:ICLR). This group of stocks’ market values are similar to EEFT’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $922 million. That figure was $377 million in EEFT’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Sensata Technologies Holding plc (NYSE:ST) is the least popular one with only 21 bullish hedge fund positions. Euronet Worldwide, Inc. (NASDAQ:EEFT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on EEFT as the stock returned 9.7% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.