“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Hurco Companies, Inc. (NASDAQ:HURC) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Hurco Companies, Inc. (NASDAQ:HURC) has experienced a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that HURC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to check out the recent hedge fund action surrounding Hurco Companies, Inc. (NASDAQ:HURC).
How are hedge funds trading Hurco Companies, Inc. (NASDAQ:HURC)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in HURC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in Hurco Companies, Inc. (NASDAQ:HURC), worth close to $30.1 million, amounting to 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $4.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism contain Noam Gottesman’s GLG Partners, John Overdeck and David Siegel’s Two Sigma Advisors and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Hurco Companies, Inc. (NASDAQ:HURC), around 0.28% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, setting aside 0.0049 percent of its 13F equity portfolio to HURC.
Because Hurco Companies, Inc. (NASDAQ:HURC) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there were a few fund managers that elected to cut their entire stakes by the end of the third quarter. Interestingly, Paul Hondros’s AlphaOne Capital Partners sold off the largest stake of the 750 funds tracked by Insider Monkey, totaling an estimated $0.7 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Hurco Companies, Inc. (NASDAQ:HURC). These stocks are Citi Trends, Inc. (NASDAQ:CTRN), The Container Store Group, Inc. (NYSE:TCS), Penns Woods Bancorp, Inc. (NASDAQ:PWOD), and Mid Penn Bancorp (NASDAQ:MPB). This group of stocks’ market valuations match HURC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTRN | 12 | 30259 | -1 |
| TCS | 16 | 11667 | -2 |
| PWOD | 1 | 5741 | 0 |
| MPB | 4 | 7365 | 0 |
| Average | 8.25 | 13758 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $36 million in HURC’s case. The Container Store Group, Inc. (NYSE:TCS) is the most popular stock in this table. On the other hand Penns Woods Bancorp, Inc. (NASDAQ:PWOD) is the least popular one with only 1 bullish hedge fund positions. Hurco Companies, Inc. (NASDAQ:HURC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on HURC as the stock returned 11.2% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
