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Were Hedge Funds Right About Piling Into SS&C Technologies Holdings (SSNC)?

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 SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) was in 57 hedge funds’ portfolios at the end of March. SSNC shareholders have witnessed a decrease in hedge fund interest recently. There were 59 hedge funds in our database with SSNC holdings at the end of the previous quarter. Our calculations also showed that SSNC 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 we’re going to go over the new hedge fund action regarding SS&C Technologies Holdings, Inc. (NASDAQ:SSNC).

Hedge fund activity in SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)

At the end of the first quarter, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the fourth quarter of 2019. By comparison, 37 hedge funds held shares or bullish call options in SSNC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Select Equity Group was the largest shareholder of SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), with a stake worth $323.8 million reported as of the end of September. Trailing Select Equity Group was Cantillon Capital Management, which amassed a stake valued at $181 million. Cat Rock Capital, Alkeon Capital Management, and Southpoint Capital Advisors 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 Cat Rock Capital allocated the biggest weight to SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), around 20.05% of its 13F portfolio. General Equity Partners is also relatively very bullish on the stock, dishing out 11.63 percent of its 13F equity portfolio to SSNC.

Judging by the fact that SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few hedgies that decided to sell off their positions entirely last quarter. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management cut the largest position of all the hedgies watched by Insider Monkey, worth about $24.6 million in stock, and Mike Ogborne’s Ogborne Capital was right behind this move, as the fund dumped about $8.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). We will take a look at Shinhan Financial Group Co., Ltd. (NYSE:SHG), Discover Financial Services (NYSE:DFS), International Flavors & Fragrances Inc (NYSE:IFF), and Broadridge Financial Solutions, Inc. (NYSE:BR). All of these stocks’ market caps match SSNC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHG 5 8469 2
DFS 40 466951 1
IFF 28 163049 0
BR 29 307241 -6
Average 25.5 236428 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $236 million. That figure was $1732 million in SSNC’s case. Discover Financial Services (NYSE:DFS) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SSNC as the stock returned 29.2% in Q2 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.

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