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 Pearson PLC (ADR) (NYSE:PSO) .
Pearson PLC (ADR) (NYSE:PSO) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the third quarter of 2016. 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 E TRADE Financial Corporation (NASDAQ:ETFC), Everest Re Group Ltd (NYSE:RE), and Msci Inc (NYSE:MSCI) to gather more data points.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
With all of this in mind, let’s take a look at the key action surrounding Pearson PLC (ADR) (NYSE:PSO).
What have hedge funds been doing with Pearson PLC (ADR) (NYSE:PSO)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in PSO heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Jim Simons’ Renaissance Technologies, one of the largest hedge funds in the world, has the biggest position in Pearson PLC (ADR) (NYSE:PSO), worth close to $16.6 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $16.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors and Matthew Tewksbury’s Stevens Capital Management. We should note that none of these hedge funds are 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.
Judging by the fact that Pearson PLC (ADR) (NYSE:PSO) has weathered bearish sentiment from hedge fund managers, we can see that there exists a select few hedgies who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw dumped the biggest investment of the “upper crust” of funds studied by Insider Monkey, worth an estimated $1.6 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dumped its stock, about $0.3 million worth.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pearson PLC (ADR) (NYSE:PSO) but similarly valued. These stocks are E TRADE Financial Corporation (NASDAQ:ETFC), Everest Re Group Ltd (NYSE:RE), Msci Inc (NYSE:MSCI), and Michael Kors Holdings Ltd (NYSE:KORS). This group of stocks’ market caps are closest to PSO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $668 million. That figure was $35 million in PSO’s case. E TRADE Financial Corporation (NASDAQ:ETFC) is the most popular stock in this table. On the other hand Everest Re Group Ltd (NYSE:RE) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Pearson PLC (ADR) (NYSE:PSO) is even less popular than RE. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.