It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 15.1% over the last 12 months (vs. 5.6% gain for SPY), with 53% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Paylocity Holding Corp (NASDAQ:PCTY).
Is Paylocity Holding Corp (NASDAQ:PCTY) a buy, sell, or hold? Prominent investors are taking an optimistic view. The number of bullish hedge fund bets rose by 1 recently. Our calculations also showed that PCTY 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a look at the new hedge fund action regarding Paylocity Holding Corp (NASDAQ:PCTY).
How are hedge funds trading Paylocity Holding Corp (NASDAQ:PCTY)?
Heading into the fourth quarter of 2018, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PCTY over the last 13 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Marshall Wace LLP, managed by Paul Marshall and Ian Wace, holds the most valuable position in Paylocity Holding Corp (NASDAQ:PCTY). Marshall Wace LLP has a $47.4 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Greg Poole of Echo Street Capital Management, with a $29.8 million position; 0.7% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish contain Jim Simons’s Renaissance Technologies, Israel Englander’s Millennium Management and Philip Hilal’s Clearfield Capital.
Now, specific money managers were breaking ground themselves. Tudor Investment Corp, managed by Paul Tudor Jones, established the most valuable position in Paylocity Holding Corp (NASDAQ:PCTY). Tudor Investment Corp had $0.8 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new PCTY position is Guy Shahar’s DSAM Partners.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Paylocity Holding Corp (NASDAQ:PCTY) but similarly valued. We will take a look at Cimpress NV (NASDAQ:CMPR), TFS Financial Corporation (NASDAQ:TFSL), ProShares UltraPro QQQ (NASDAQ:TQQQ), and Coherent, Inc. (NASDAQ:COHR). This group of stocks’ market valuations resemble PCTY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMPR | 17 | 660721 | 0 |
| TFSL | 9 | 125395 | 1 |
| TQQQ | 2 | 1540 | 0 |
| COHR | 13 | 109000 | -4 |
| Average | 10.25 | 224164 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $224 million. That figure was $203 million in PCTY’s case. Cimpress NV (NASDAQ:CMPR) is the most popular stock in this table. On the other hand ProShares UltraPro QQQ (NASDAQ:TQQQ) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Paylocity Holding Corp (NASDAQ:PCTY) 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. This article was originally published at Insider Monkey.
