Is EPAM Systems Inc (EPAM) Going to Burn These Hedge Funds?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards EPAM Systems Inc (NYSE:EPAM) .

EPAM Systems Inc (NYSE:EPAM) was in 15 hedge funds’ portfolios at the end of September. EPAM has experienced a decrease in hedge fund interest recently. There were 24 hedge funds in our database with EPAM holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as CAE, Inc. (USA) (NYSE:CAE), Black Hills Corp (NYSE:BKH), and First Industrial Realty Trust, Inc. (NYSE:FR) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What does the smart money think about EPAM Systems Inc (NYSE:EPAM)?

Heading into the fourth quarter of 2016, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a fall of 38% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in EPAM over the last 5 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Conatus Capital Management, led by David Stemerman, holds the most valuable position in EPAM Systems Inc (NYSE:EPAM). Conatus Capital Management has a $66.2 million position in the stock, comprising 4.3% of its 13F portfolio. The second most bullish fund manager is Southpoint Capital Advisors, led by John Smith Clark, holding a $58.4 million position; 2.6% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions consist of Alex Sacerdote’s Whale Rock Capital Management, Alok Agrawal’s Bloom Tree Partners and Matthew A. Weatherbie’s Weatherbie Capital. We should note that Whale Rock Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Because EPAM Systems Inc (NYSE:EPAM) has witnessed falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedgies who sold off their positions entirely heading into Q4. Intriguingly, David Halpert’s Prince Street Capital Management cashed in the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $11.5 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund said goodbye to about $10 million worth of shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as EPAM Systems Inc (NYSE:EPAM) but similarly valued. We will take a look at CAE, Inc. (USA) (NYSE:CAE), Black Hills Corp (NYSE:BKH), First Industrial Realty Trust, Inc. (NYSE:FR), and Snyder S Lance Inc (NASDAQ:LNCE). All of these stocks’ market caps resemble EPAM’s market cap.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $214 million in EPAM’s case. Black Hills Corp (NYSE:BKH) is the most popular stock in this table. On the other hand Snyder S Lance Inc (NASDAQ:LNCE) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks EPAM Systems Inc (NYSE:EPAM) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None