Hedge Funds Have Never Been This Bullish On Pegasystems Inc. (PEGA)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Pegasystems Inc. (NASDAQ:PEGA).

Is Pegasystems Inc. (NASDAQ:PEGA) a buy right now? Hedge funds are taking an optimistic view. The number of bullish hedge fund positions advanced by 8 in recent months. Our calculations also showed that PEGA 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). PEGA was in 33 hedge funds’ portfolios at the end of March. There were 25 hedge funds in our database with PEGA holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 51 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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. Keeping this in mind we’re going to take a gander at the recent hedge fund action regarding Pegasystems Inc. (NASDAQ:PEGA).

What does smart money think about Pegasystems Inc. (NASDAQ:PEGA)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PEGA over the last 18 quarters. 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, Bares Capital Management was the largest shareholder of Pegasystems Inc. (NASDAQ:PEGA), with a stake worth $287.7 million reported as of the end of September. Trailing Bares Capital Management was Luxor Capital Group, which amassed a stake valued at $248.5 million. Cadian Capital, SQN Investors, and Fisher Asset Management 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 Totem Point Management allocated the biggest weight to Pegasystems Inc. (NASDAQ:PEGA), around 13.12% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, dishing out 10.37 percent of its 13F equity portfolio to PEGA.

Consequently, some big names have been driving this bullishness. Praesidium Investment Management Company, managed by Kevin Oram and Peter Uddo, assembled the most outsized position in Pegasystems Inc. (NASDAQ:PEGA). Praesidium Investment Management Company had $35.1 million invested in the company at the end of the quarter. Zach Petrone’s Highside Global Management also made a $8.9 million investment in the stock during the quarter. The following funds were also among the new PEGA investors: Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Highbridge Capital Management, and Jeffrey Hoffner’s Engle Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Pegasystems Inc. (NASDAQ:PEGA) but similarly valued. We will take a look at Huaneng Power International Inc (NYSE:HNP), Commerce Bancshares, Inc. (NASDAQ:CBSH), Penumbra Inc (NYSE:PEN), and Federal Realty Investment Trust (NYSE:FRT). This group of stocks’ market valuations match PEGA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $1024 million in PEGA’s case. Federal Realty Investment Trust (NYSE:FRT) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Pegasystems Inc. (NASDAQ:PEGA) 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 PEGA as the stock returned 33.5% 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.

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