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Were Hedge Funds Right About Ditching Shutterstock Inc (SSTK)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Shutterstock Inc (NYSE:SSTK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Shutterstock Inc (NYSE:SSTK) investors should be aware of a decrease in support from the world’s most elite money managers lately. SSTK was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with SSTK positions at the end of the previous quarter. Our calculations also showed that SSTK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 biggest gold mining companies to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the recent hedge fund action encompassing Shutterstock Inc (NYSE:SSTK).

What have hedge funds been doing with Shutterstock Inc (NYSE:SSTK)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in SSTK a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SSTK A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Shutterstock Inc (NYSE:SSTK), with a stake worth $30.6 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $16.4 million. Arrowstreet Capital, Two Sigma Advisors, and GLG Partners 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 Tudor Investment Corp allocated the biggest weight to Shutterstock Inc (NYSE:SSTK), around 0.09% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to SSTK.

Due to the fact that Shutterstock Inc (NYSE:SSTK) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of fund managers that slashed their full holdings last quarter. Intriguingly, Michael Gelband’s ExodusPoint Capital sold off the biggest stake of the 750 funds followed by Insider Monkey, totaling close to $0.6 million in stock, and Joel Greenblatt’s Gotham Asset Management was right behind this move, as the fund sold off about $0.4 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Shutterstock Inc (NYSE:SSTK) but similarly valued. We will take a look at Industrial Logistics Properties Trust (NASDAQ:ILPT), Coherus Biosciences Inc (NASDAQ:CHRS), Dana Incorporated (NYSE:DAN), and Altra Industrial Motion Corp. (NASDAQ:AIMC). This group of stocks’ market valuations resemble SSTK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ILPT 9 60718 -4
CHRS 35 216871 3
DAN 28 143927 1
AIMC 15 80915 0
Average 21.75 125608 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $77 million in SSTK’s case. Coherus Biosciences Inc (NASDAQ:CHRS) is the most popular stock in this table. On the other hand Industrial Logistics Properties Trust (NASDAQ:ILPT) is the least popular one with only 9 bullish hedge fund positions. Shutterstock Inc (NYSE:SSTK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately SSTK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SSTK investors were disappointed as the stock returned 8.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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