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These Hedge Funds Dumped Perspecta Inc. (PRSP) At the Wrong Time

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Perspecta Inc. (NYSE:PRSP) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. PRSP was in 34 hedge funds’ portfolios at the end of the first quarter of 2019. There were 37 hedge funds in our database with PRSP holdings at the end of the previous quarter. Our calculations also showed that PRSP 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 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

YORK CAPITAL MANAGEMENT

We’re going to take a look at the recent hedge fund action regarding Perspecta Inc. (NYSE:PRSP).

What does smart money think about Perspecta Inc. (NYSE:PRSP)?

Heading into the second quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the fourth quarter of 2018. On the other hand, there were a total of 0 hedge funds with a bullish position in PRSP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PRSP_jun2019

More specifically, Maverick Capital was the largest shareholder of Perspecta Inc. (NYSE:PRSP), with a stake worth $159.8 million reported as of the end of March. Trailing Maverick Capital was Dorsal Capital Management, which amassed a stake valued at $77.8 million. Freshford Capital Management, Sunriver Management, and York Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Perspecta Inc. (NYSE:PRSP) has witnessed a decline in interest from the smart money, it’s easy to see that there were a few hedgies who sold off their positions entirely heading into Q3. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management sold off the biggest position of all the hedgies monitored by Insider Monkey, valued at about $10.8 million in stock. Paul Singer’s fund, Elliott Management, also said goodbye to its stock, about $8.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Perspecta Inc. (NYSE:PRSP). These stocks are Ryder System, Inc. (NYSE:R), Qutoutiao Inc. (NASDAQ:QTT), Omnicell, Inc. (NASDAQ:OMCL), and Azul S.A. (NYSE:AZUL). All of these stocks’ market caps are closest to PRSP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
R 19 380483 0
QTT 5 6780 4
OMCL 15 78492 2
AZUL 12 151033 1
Average 12.75 154197 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $646 million in PRSP’s case. Ryder System, Inc. (NYSE:R) is the most popular stock in this table. On the other hand Qutoutiao Inc. (NASDAQ:QTT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Perspecta Inc. (NYSE:PRSP) is more popular among hedge funds even though some hedge funds sold out of the stock by the end of the first quarter. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on PRSP as the stock returned 16.5% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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