Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Hamilton Beach Brands Holding Company (NYSE:HBB)? The smart money sentiment can provide an answer to this question.
Hamilton Beach Brands Holding Company (NYSE:HBB) was in 5 hedge funds’ portfolios at the end of September. HBB has seen an increase in activity from the world’s largest hedge funds of late. There were 1 hedge funds in our database with HBB positions at the end of the previous quarter. Our calculations also showed that HBB 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.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Paul Marshall of Marshall Wace
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. Keeping this in mind let’s check out the new hedge fund action regarding Hamilton Beach Brands Holding Company (NYSE:HBB).
How are hedge funds trading Hamilton Beach Brands Holding Company (NYSE:HBB)?
Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 400% from the second quarter of 2019. On the other hand, there were a total of 2 hedge funds with a bullish position in HBB a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Israel Englander’s Millennium Management has the biggest position in Hamilton Beach Brands Holding Company (NYSE:HBB), worth close to $0.5 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $0.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions include Frederick DiSanto’s Ancora Advisors, David E. Shaw’s D E Shaw and Paul Marshall and Ian Wace’s Marshall Wace. In terms of the portfolio weights assigned to each position Ancora Advisors allocated the biggest weight to Hamilton Beach Brands Holding Company (NYSE:HBB), around 0.01% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, earmarking 0.0019 percent of its 13F equity portfolio to HBB.
Consequently, specific money managers have jumped into Hamilton Beach Brands Holding Company (NYSE:HBB) headfirst. Millennium Management, managed by Israel Englander, initiated the largest position in Hamilton Beach Brands Holding Company (NYSE:HBB). Millennium Management had $0.5 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.4 million investment in the stock during the quarter. The other funds with brand new HBB positions are David E. Shaw’s D E Shaw and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s also examine hedge fund activity in other stocks similar to Hamilton Beach Brands Holding Company (NYSE:HBB). These stocks are Farmer Bros. Co. (NASDAQ:FARM), Ardmore Shipping Corporation (NYSE:ASC), Cherry Hill Mortgage Investment Corporation (NYSE:CHMI), and Value Line, Inc. (NASDAQ:VALU). All of these stocks’ market caps match HBB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FARM | 13 | 73223 | 3 |
| ASC | 14 | 24877 | 4 |
| CHMI | 9 | 18326 | 0 |
| VALU | 2 | 3257 | 0 |
| Average | 9.5 | 29921 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $2 million in HBB’s case. Ardmore Shipping Corporation (NYSE:ASC) is the most popular stock in this table. On the other hand Value Line, Inc. (NASDAQ:VALU) is the least popular one with only 2 bullish hedge fund positions. Hamilton Beach Brands Holding Company (NYSE:HBB) 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 HBB as the stock returned 22.1% 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.
