The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of The Descartes Systems Group Inc (NASDAQ:DSGX) and find out how it is affected by hedge funds’ moves.
The Descartes Systems Group Inc (NASDAQ:DSGX) shareholders have witnessed a decrease in enthusiasm from smart money lately. Our calculations also showed that DSGX 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.
We’re going to take a look at the latest hedge fund action regarding The Descartes Systems Group Inc (NASDAQ:DSGX).
What have hedge funds been doing with The Descartes Systems Group Inc (NASDAQ:DSGX)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in DSGX over the last 15 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of The Descartes Systems Group Inc (NASDAQ:DSGX), with a stake worth $33.1 million reported as of the end of March. Trailing Arrowstreet Capital was Renaissance Technologies, which amassed a stake valued at $18.8 million. Echo Street Capital Management, Royce & Associates, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since The Descartes Systems Group Inc (NASDAQ:DSGX) has experienced falling interest from hedge fund managers, it’s safe to say that there were a few hedge funds that slashed their positions entirely heading into Q3. Interestingly, Mark N. Diker’s Diker Management sold off the largest investment of all the hedgies monitored by Insider Monkey, comprising about $4.6 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dumped its stock, about $1.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to The Descartes Systems Group Inc (NASDAQ:DSGX). These stocks are BancorpSouth Bank (NYSE:BXS), EnerSys (NYSE:ENS), SkyWest, Inc. (NASDAQ:SKYW), and Senior Housing Properties Trust (NASDAQ:SNH). This group of stocks’ market values are similar to DSGX’s market value.
|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 $96 million. That figure was $81 million in DSGX’s case. EnerSys (NYSE:ENS) is the most popular stock in this table. On the other hand BancorpSouth Bank (NYSE:BXS) is the least popular one with only 9 bullish hedge fund positions. The Descartes Systems Group Inc (NASDAQ:DSGX) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on DSGX, though not to the same extent, as the stock returned 4.4% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.