PJT Partners Inc (PJT): Hedge Funds Taking Some Chips Off The Table

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding PJT Partners Inc (NYSE:PJT) and determine whether hedge funds had an edge regarding this stock.

PJT Partners Inc (NYSE:PJT) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. PJT investors should be aware of a decrease in activity from the world’s largest hedge funds of late. There were 22 hedge funds in our database with PJT positions at the end of the first quarter. Our calculations also showed that PJT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Rachesky MHR

Mark Rachesky of MHR Fund Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a glance at the new hedge fund action encompassing PJT Partners Inc (NYSE:PJT).

What does smart money think about PJT Partners Inc (NYSE:PJT)?

At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PJT over the last 20 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in PJT Partners Inc (NYSE:PJT) was held by MHR Fund Management, which reported holding $45.2 million worth of stock at the end of September. It was followed by Millennium Management with a $13.1 million position. Other investors bullish on the company included Schonfeld Strategic Advisors, Tudor Investment Corp, and GAMCO Investors. In terms of the portfolio weights assigned to each position MHR Fund Management allocated the biggest weight to PJT Partners Inc (NYSE:PJT), around 4.87% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, designating 0.62 percent of its 13F equity portfolio to PJT.

Since PJT Partners Inc (NYSE:PJT) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few hedge funds that slashed their entire stakes by the end of the second quarter. At the top of the heap, Sander Gerber’s Hudson Bay Capital Management said goodbye to the largest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $4.3 million in stock. John Petry’s fund, Sessa Capital, also dropped its stock, about $2.4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to PJT Partners Inc (NYSE:PJT). We will take a look at Spectrum Brands Holdings, Inc. (NYSE:SPB), Principia Biopharma Inc. (NASDAQ:PRNB), AssetMark Financial Holdings, Inc. (NYSE:AMK), Cimpress plc (NASDAQ:CMPR), Select Medical Holdings Corporation (NYSE:SEM), Yext, Inc. (NYSE:YEXT), and National Storage Affiliates Trust (NYSE:NSA). This group of stocks’ market caps are closest to PJT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPB 26 249356 2
PRNB 26 654270 5
AMK 6 29052 2
CMPR 25 269870 6
SEM 22 93345 4
YEXT 10 31408 1
NSA 13 54586 -5
Average 18.3 197412 2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $105 million in PJT’s case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand AssetMark Financial Holdings, Inc. (NYSE:AMK) is the least popular one with only 6 bullish hedge fund positions. PJT Partners Inc (NYSE:PJT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PJT is 70.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on PJT as the stock returned 18.2% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.