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Were Hedge Funds Right About Buying Sapiens International Corporation (SPNS)?

Is Sapiens International Corporation N.V. (NASDAQ:SPNS) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Sapiens International Corporation N.V. (NASDAQ:SPNS) was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. SPNS investors should be aware of an increase in hedge fund interest in recent months. There were 7 hedge funds in our database with SPNS holdings at the end of the previous quarter. Our calculations also showed that SPNS isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

NAVELLIER & ASSOCIATES

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the key hedge fund action encompassing Sapiens International Corporation N.V. (NASDAQ:SPNS).

Hedge fund activity in Sapiens International Corporation N.V. (NASDAQ:SPNS)

At Q2’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SPNS over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

SPNS_oct2019

Among these funds, Renaissance Technologies held the most valuable stake in Sapiens International Corporation N.V. (NASDAQ:SPNS), which was worth $10 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $7.1 million worth of shares. Moreover, Millennium Management, Navellier & Associates, and Caxton Associates LP were also bullish on Sapiens International Corporation N.V. (NASDAQ:SPNS), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, specific money managers have jumped into Sapiens International Corporation N.V. (NASDAQ:SPNS) headfirst. ExodusPoint Capital, managed by Michael Gelband, assembled the most outsized position in Sapiens International Corporation N.V. (NASDAQ:SPNS). ExodusPoint Capital had $0.4 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0.2 million position during the quarter.

Let’s now review hedge fund activity in other stocks similar to Sapiens International Corporation N.V. (NASDAQ:SPNS). We will take a look at Retrophin Inc (NASDAQ:RTRX), Connecticut Water Service, Inc. (NASDAQ:CTWS), Baytex Energy Corp (NYSE:BTE), and Benefitfocus Inc (NASDAQ:BNFT). This group of stocks’ market caps match SPNS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RTRX 19 351604 -4
CTWS 5 24877 1
BTE 7 48534 -3
BNFT 15 56723 -7
Average 11.5 120435 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $23 million in SPNS’s case. Retrophin Inc (NASDAQ:RTRX) is the most popular stock in this table. On the other hand Connecticut Water Service, Inc. (NASDAQ:CTWS) is the least popular one with only 5 bullish hedge fund positions. Sapiens International Corporation N.V. (NASDAQ:SPNS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SPNS as the stock returned 19.6% during the same time frame and outperformed the market by an even larger margin.

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

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