Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
In this article, we are going to take a closer look at CSG Systems International, Inc. (NASDAQ:CSGS), which saw a decrease in enthusiasm from smart money last quarter. There were 16 hedge funds in our database with CSGS positions at the end of September, compared to 19 funds three months earlier. 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 8×8, Inc. (NASDAQ:EGHT), Gigamon Inc (NYSE:GIMO), and TeleTech Holdings, Inc. (NASDAQ:TTEC) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
How are hedge funds trading CSG Systems International, Inc. (NASDAQ:CSGS)?
Heading into the fourth quarter of 2016, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CSGS over the last five quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons’ Renaissance Technologies has the biggest position in CSG Systems International, Inc. (NASDAQ:CSGS), worth close to $93.6 million. Sitting at the No. 2 spot is David E. Shaw’s D E Shaw, which holds a $10.6 million position. Other members of the smart money that are bullish encompass Tim Curro’s Value Holdings LP, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Joel Greenblatt’s Gotham Asset Management. We should note that Value Holdings LP is 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.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually sold off their positions entirely. It’s worth mentioning that Ric Dillon’s Diamond Hill Capital sold off the biggest stake of all the investors watched by Insider Monkey, worth close to $1.8 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $1 million worth of shares.
Let’s also examine hedge fund activity in other stocks similar to CSG Systems International, Inc. (NASDAQ:CSGS). We will take a look at 8×8, Inc. (NASDAQ:EGHT), Gigamon Inc (NYSE:GIMO), TeleTech Holdings, Inc. (NASDAQ:TTEC), and Rovi Corporation (NASDAQ:ROVI). This group of stocks’ market valuations match CSGS’s market valuation.
|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 12 investors with bullish positions and the average amount invested in these stocks was $103 million. That figure was $158 million in CSGS’s case. Gigamon Inc (NYSE:GIMO) is the most popular stock in this table, while Rovi Corporation (NASDAQ:ROVI) is the least popular one with only one fund holding shares. CSG Systems International, Inc. (NASDAQ:CSGS) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Gigamon Inc (NYSE:GIMO) might be a better candidate to consider taking a long position in.