Hedge Funds Have Never Been This Bullish On Nuance Communications Inc. (NUAN)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Nuance Communications Inc. (NASDAQ:NUAN) based on those filings.

Nuance Communications Inc. (NASDAQ:NUAN) was in 42 hedge funds’ portfolios at the end of March. NUAN investors should pay attention to an increase in hedge fund interest in recent months. There were 39 hedge funds in our database with NUAN holdings at the end of the previous quarter. Our calculations also showed that NUAN 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Justin John Ferayorni - Tamarack Capital Management

Justin John Ferayorni of Tamarack Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a glance at the new hedge fund action regarding Nuance Communications Inc. (NASDAQ:NUAN).

What does smart money think about Nuance Communications Inc. (NASDAQ:NUAN)?

Heading into the second quarter of 2020, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in NUAN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Southpoint Capital Advisors was the largest shareholder of Nuance Communications Inc. (NASDAQ:NUAN), with a stake worth $117.5 million reported as of the end of September. Trailing Southpoint Capital Advisors was RGM Capital, which amassed a stake valued at $108.2 million. Glenview Capital, Park West Asset Management, and Brahman Capital 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 RGM Capital allocated the biggest weight to Nuance Communications Inc. (NASDAQ:NUAN), around 8.5% of its 13F portfolio. Brahman Capital is also relatively very bullish on the stock, designating 7.69 percent of its 13F equity portfolio to NUAN.

Now, some big names were breaking ground themselves. Southpoint Capital Advisors, managed by John Smith Clark, initiated the biggest position in Nuance Communications Inc. (NASDAQ:NUAN). Southpoint Capital Advisors had $117.5 million invested in the company at the end of the quarter. Ricky Sandler’s Eminence Capital also made a $49.3 million investment in the stock during the quarter. The other funds with brand new NUAN positions are Justin John Ferayorni’s Tamarack Capital Management, Mark Coe’s Intrinsic Edge Capital, and Jerry Kochanski’s Shelter Haven Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Nuance Communications Inc. (NASDAQ:NUAN). We will take a look at AECOM (NYSE:ACM), Paylocity Holding Corp (NASDAQ:PCTY), GFL Environmental Inc. (NYSE:GFL), and Five9 Inc (NASDAQ:FIVN). This group of stocks’ market values are similar to NUAN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACM 39 670829 3
PCTY 33 409592 7
GFL 10 150736 10
FIVN 33 715609 -2
Average 28.75 486692 4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $487 million. That figure was $765 million in NUAN’s case. AECOM (NYSE:ACM) is the most popular stock in this table. On the other hand GFL Environmental Inc. (NYSE:GFL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Nuance Communications Inc. (NASDAQ:NUAN) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on NUAN as the stock returned 36.4% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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