Hedge Funds Have Never Been This Bullish On Paycom Software Inc (PAYC)

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Paycom Software Inc (NYSE:PAYC) and see how the stock is affected by the recent hedge fund activity.

Is Paycom Software Inc (NYSE:PAYC) a healthy stock for your portfolio? Money managers are taking an optimistic view. The number of long hedge fund positions inched up by 6 in recent months. Our calculations also showed that payc isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson, Carlson Capital

We’re going to take a look at the latest hedge fund action surrounding Paycom Software Inc (NYSE:PAYC).

How have hedgies been trading Paycom Software Inc (NYSE:PAYC)?

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards PAYC over the last 15 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with PAYC Positions

The largest stake in Paycom Software Inc (NYSE:PAYC) was held by Arrowstreet Capital, which reported holding $85.5 million worth of stock at the end of March. It was followed by AQR Capital Management with a $33.5 million position. Other investors bullish on the company included Fisher Asset Management, Carlson Capital, and D E Shaw.

As aggregate interest increased, key money managers have jumped into Paycom Software Inc (NYSE:PAYC) headfirst. Carlson Capital, managed by Clint Carlson, established the most outsized position in Paycom Software Inc (NYSE:PAYC). Carlson Capital had $24.4 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $13.2 million position during the quarter. The other funds with brand new PAYC positions are Michael Gelband’s ExodusPoint Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s go over hedge fund activity in other stocks similar to Paycom Software Inc (NYSE:PAYC). These stocks are Cabot Oil & Gas Corporation (NYSE:COG), Ally Financial Inc (NYSE:ALLY), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), and Duke Realty Corporation (NYSE:DRE). This group of stocks’ market caps are similar to PAYC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COG 32 944075 -1
ALLY 35 2048431 -1
JBHT 27 334824 2
DRE 16 302599 -6
Average 27.5 907482 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $907 million. That figure was $318 million in PAYC’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 bullish hedge fund positions. Paycom Software Inc (NYSE:PAYC) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on PAYC as the stock returned 10.6% during the same time frame and outperformed the market by an even larger margin.

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