Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
Is Exponent, Inc. (NASDAQ:EXPO) the right investment to pursue these days? Money managers are turning bullish. The number of bullish hedge fund bets went up by 2 recently. Our calculations also showed that EXPO isn’t among the 30 most popular stocks among hedge funds. EXPO was in 12 hedge funds’ portfolios at the end of the third quarter of 2018. There were 10 hedge funds in our database with EXPO positions at the end of the previous quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to view the new hedge fund action regarding Exponent, Inc. (NASDAQ:EXPO).
How have hedgies been trading Exponent, Inc. (NASDAQ:EXPO)?
Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the second quarter of 2018. By comparison, 11 hedge funds held shares or bullish call options in EXPO heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Exponent, Inc. (NASDAQ:EXPO), which was worth $49.2 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $17.1 million worth of shares. Moreover, Sandler Capital Management, Two Sigma Advisors, and AlphaOne Capital Partners were also bullish on Exponent, Inc. (NASDAQ:EXPO), allocating a large percentage of their portfolios to this stock.
Consequently, key money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in Exponent, Inc. (NASDAQ:EXPO). Marshall Wace LLP had $2.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $1.4 million position during the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Exponent, Inc. (NASDAQ:EXPO) but similarly valued. These stocks are Aerie Pharmaceuticals Inc (NASDAQ:AERI), Delphi Automotive PLC (NYSE:DLPH), FTI Consulting, Inc. (NYSE:FCN), and InterDigital, Inc. (NASDAQ:IDCC). This group of stocks’ market valuations resemble EXPO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AERI | 23 | 924919 | -1 |
| DLPH | 22 | 295869 | -1 |
| FCN | 18 | 108657 | 4 |
| IDCC | 18 | 174990 | 3 |
| Average | 20.25 | 376109 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $101 million in EXPO’s case. Aerie Pharmaceuticals Inc (NASDAQ:AERI) is the most popular stock in this table. On the other hand FTI Consulting, Inc. (NYSE:FCN) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Exponent, Inc. (NASDAQ:EXPO) is even less popular than FCN. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
