A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 4 percentage points during the first half of the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Raven Industries, Inc. (NASDAQ:RAVN) during the quarter.
Raven Industries, Inc. (NASDAQ:RAVN) investors should be aware of an increase in hedge fund sentiment recently. RAVN was in 15 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with RAVN positions at the end of the previous quarter. Our calculations also showed that ravn isn’t among the 30 most popular stocks among hedge funds.
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 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.
Let’s go over the key hedge fund action encompassing Raven Industries, Inc. (NASDAQ:RAVN).
What does the smart money think about Raven Industries, Inc. (NASDAQ:RAVN)?
Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RAVN over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Raven Industries, Inc. (NASDAQ:RAVN), with a stake worth $69.7 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $8.6 million. Citadel Investment Group, GAMCO Investors, and Arlington Value Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the most outsized position in Raven Industries, Inc. (NASDAQ:RAVN). Two Sigma Advisors had $0.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, D. E. Shaw’s D E Shaw, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Raven Industries, Inc. (NASDAQ:RAVN). We will take a look at Akorn, Inc. (NASDAQ:AKRX), Alexander & Baldwin Inc (NYSE:ALEX), Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW), and Corcept Therapeutics Incorporated (NASDAQ:CORT). This group of stocks’ market values resemble RAVN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AKRX | 39 | 301099 | 0 |
| ALEX | 8 | 22147 | -1 |
| AAWW | 15 | 140701 | 0 |
| CORT | 15 | 152727 | -1 |
| Average | 19.25 | 154169 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $92 million in RAVN’s case. Akorn, Inc. (NASDAQ:AKRX) is the most popular stock in this table. On the other hand Alexander & Baldwin Inc (NYSE:ALEX) is the least popular one with only 8 bullish hedge fund positions. Raven Industries, Inc. (NASDAQ:RAVN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AKRX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
