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Were Hedge Funds Right About Pulling The Plug On Cyberark Software Ltd (CYBR)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Cyberark Software Ltd (NASDAQ:CYBR).

Cyberark Software Ltd (NASDAQ:CYBR) has experienced a decrease in hedge fund sentiment of late. CYBR was in 19 hedge funds’ portfolios at the end of June. There were 28 hedge funds in our database with CYBR positions at the end of the previous quarter. Our calculations also showed that CYBR 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.

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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Robert Moses RGM Capital

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 look at the fresh hedge fund action encompassing Cyberark Software Ltd (NASDAQ:CYBR).

How have hedgies been trading Cyberark Software Ltd (NASDAQ:CYBR)?

At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in CYBR a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

CYBR_oct2019

According to Insider Monkey’s hedge fund database, RGM Capital, managed by Robert G. Moses, holds the number one position in Cyberark Software Ltd (NASDAQ:CYBR). RGM Capital has a $75.5 million position in the stock, comprising 5.4% of its 13F portfolio. Coming in second is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $71.2 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Renaissance Technologies and Ken Griffin’s Citadel Investment Group.

Since Cyberark Software Ltd (NASDAQ:CYBR) has experienced a decline in interest from hedge fund managers, we can see that there is a sect of hedge funds who sold off their full holdings last quarter. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital sold off the largest stake of the 750 funds tracked by Insider Monkey, totaling close to $13.9 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund cut about $8.9 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 9 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Cyberark Software Ltd (NASDAQ:CYBR). These stocks are Nordstrom, Inc. (NYSE:JWN), Black Hills Corporation (NYSE:BKH), Kinross Gold Corporation (NYSE:KGC), and VEON Ltd. (NASDAQ:VEON). This group of stocks’ market caps match CYBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JWN 27 158315 1
BKH 16 155183 -2
KGC 18 311730 -1
VEON 12 72439 -3
Average 18.25 174417 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $308 million in CYBR’s case. Nordstrom, Inc. (NYSE:JWN) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 12 bullish hedge fund positions. Cyberark Software Ltd (NASDAQ:CYBR) 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. 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. Unfortunately CYBR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CYBR were disappointed as the stock returned -21.9% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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