Proofpoint Inc (PFPT) Disappoints Hedge Funds

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 26.2% through November 22nd (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 34.7% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Proofpoint Inc (NASDAQ:PFPT).

Is Proofpoint Inc (NASDAQ:PFPT) a sound investment right now? Prominent investors are getting more bullish. The number of long hedge fund positions moved up by 6 in recent months. Our calculations also showed that PFPT isn’t among the 30 most popular stocks among hedge funds.

In the eyes of most shareholders, hedge funds are perceived as unimportant, outdated financial tools of the past. While there are more than 8000 funds in operation today, Our experts hone in on the top tier of this group, approximately 750 funds. Most estimates calculate that this group of people shepherd most of the hedge fund industry’s total asset base, and by monitoring their unrivaled investments, Insider Monkey has found several investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

David Harding

David Harding of Winton Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the recent hedge fund action surrounding Proofpoint Inc (NASDAQ:PFPT).

Hedge fund activity in Proofpoint Inc (NASDAQ:PFPT)

At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PFPT over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


More specifically, Alkeon Capital Management was the largest shareholder of Proofpoint Inc (NASDAQ:PFPT), with a stake worth $102.1 million reported as of the end of September. Trailing Alkeon Capital Management was RGM Capital, which amassed a stake valued at $66.8 million. Tremblant Capital, Two Sigma Advisors, and Polar Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position RGM Capital allocated the biggest weight to Proofpoint Inc (NASDAQ:PFPT), around 4.45% of its portfolio. Crosslink Capital is also relatively very bullish on the stock, dishing out 4.22 percent of its 13F equity portfolio to PFPT.

Consequently, some big names have jumped into Proofpoint Inc (NASDAQ:PFPT) headfirst. EMS Capital, managed by Edmond M. Safra, assembled the biggest position in Proofpoint Inc (NASDAQ:PFPT). EMS Capital had $31.4 million invested in the company at the end of the quarter. Amish Mehta’s SQN Investors also initiated a $29.3 million position during the quarter. The other funds with brand new PFPT positions are Ken Fisher’s Fisher Asset Management, David Harding’s Winton Capital Management, and Donald Sussman’s Paloma Partners.

Let’s now review hedge fund activity in other stocks similar to Proofpoint Inc (NASDAQ:PFPT). We will take a look at Gildan Activewear Inc (NYSE:GIL), IPG Photonics Corporation (NASDAQ:IPGP), Lear Corporation (NYSE:LEA), and Cable One Inc (NYSE:CABO). This group of stocks’ market values resemble PFPT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GIL 19 348320 -5
IPGP 14 103750 -2
LEA 33 817858 2
CABO 13 495048 -2
Average 19.75 441244 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $441 million. That figure was $637 million in PFPT’s case. Lear Corporation (NYSE:LEA) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Proofpoint Inc (NASDAQ:PFPT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately PFPT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PFPT were disappointed as the stock returned -8.1% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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