The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Pegasystems Inc. (NASDAQ:PEGA) from the perspective of those successful funds.
Is Pegasystems Inc. (NASDAQ:PEGA) a marvelous investment today? Hedge funds are selling. The number of long hedge fund bets suffered a reduction of 4 recently. PEGAwas in 16 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with PEGA holdings at the end of the previous quarter. 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 Pinnacle Financial Partners (NASDAQ:PNFP), Monro Muffler Brake Inc (NASDAQ:MNRO), and Sterling Bancorp (NYSE:STL) 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 Pegasystems Inc. (NASDAQ:PEGA)?
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decrease of 20% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in PEGA at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Cadian Capital, led by Eric Bannasch, holds the most valuable position in Pegasystems Inc. (NASDAQ:PEGA). Cadian Capital has an $87.3 million position in the stock, comprising 4.6% of its 13F portfolio. Coming in second is Ken Fisher of Fisher Asset Management, with a $48.3 million position. Remaining professional money managers that hold long positions include Amish Mehta’s SQN Investors, Ernest Chow and Jonathan Howe’s Sensato Capital Management and Brian Ashford-Russell and Tim Woolley’s Polar Capital. We should note that two of these hedge funds (SQN Investors and Sensato Capital Management) are 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.
Since Pegasystems Inc. (NASDAQ:PEGA) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedgies that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that Israel Englander’s Millennium Management dropped the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising about $4.5 million in stock, and Joel Greenblatt’s Gotham Asset Management was right behind this move, as the fund dropped about $2.3 million worth of shares.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Pegasystems Inc. (NASDAQ:PEGA) but similarly valued. We will take a look at Pinnacle Financial Partners (NASDAQ:PNFP), Monro Muffler Brake Inc (NASDAQ:MNRO), Sterling Bancorp (NYSE:STL), and VeriFone Systems Inc (NYSE:PAY). All of these stocks’ market caps resemble PEGA’s market cap.
|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 14 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $223 million in PEGA’s case. VeriFone Systems Inc (NYSE:PAY) is the most popular stock in this table. On the other hand Pinnacle Financial Partners (NASDAQ:PNFP) is the least popular one with only 10 bullish hedge fund positions. Pegasystems Inc. (NASDAQ:PEGA) 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 PAY might be a better candidate to consider taking a long position in.