“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Sapiens International Corporation N.V. (NASDAQ:SPNS) and see how it was affected.
Hedge fund interest in Sapiens International Corporation N.V. (NASDAQ:SPNS) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SPNS to other stocks including Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), Griffon Corporation (NYSE:GFF), and Abercrombie & Fitch Co. (NYSE:ANF) to get a better sense of its popularity.
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 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. Let’s view the key hedge fund action regarding Sapiens International Corporation N.V. (NASDAQ:SPNS).
What have hedge funds been doing with Sapiens International Corporation N.V. (NASDAQ:SPNS)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPNS over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Sapiens International Corporation N.V. (NASDAQ:SPNS) was held by Renaissance Technologies, which reported holding $12.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $7.1 million position. Other investors bullish on the company included Millennium Management, Driehaus Capital, and Navellier & Associates. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Sapiens International Corporation N.V. (NASDAQ:SPNS), around 0.31% of its 13F portfolio. Caxton Associates is also relatively very bullish on the stock, dishing out 0.16 percent of its 13F equity portfolio to SPNS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Driehaus Capital).
Let’s also examine hedge fund activity in other stocks similar to Sapiens International Corporation N.V. (NASDAQ:SPNS). We will take a look at Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), Griffon Corporation (NYSE:GFF), Abercrombie & Fitch Co. (NYSE:ANF), and Bain Capital Specialty Finance, Inc. (NYSE:BCSF). All of these stocks’ market caps are similar to SPNS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $29 million in SPNS’s case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is the least popular one with only 7 bullish hedge fund positions. Sapiens International Corporation N.V. (NASDAQ:SPNS) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SPNS as the stock returned 14.6% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.