Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
The Meet Group, Inc. (NASDAQ:MEET) investors should pay attention to a decrease in enthusiasm from smart money recently. MEET was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with MEET holdings at the end of the previous quarter. Our calculations also showed that MEET 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.
Christian Leone of Luxor Capital Group
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the new hedge fund action encompassing The Meet Group, Inc. (NASDAQ:MEET).
What does smart money think about The Meet Group, Inc. (NASDAQ:MEET)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in MEET a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Luxor Capital Group was the largest shareholder of The Meet Group, Inc. (NASDAQ:MEET), with a stake worth $39.4 million reported as of the end of September. Trailing Luxor Capital Group was Arrowstreet Capital, which amassed a stake valued at $5.8 million. Citadel Investment Group, Two Sigma Advisors, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Luxor Capital Group allocated the biggest weight to The Meet Group, Inc. (NASDAQ:MEET), around 1.04% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.12 percent of its 13F equity portfolio to MEET.
Because The Meet Group, Inc. (NASDAQ:MEET) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies who sold off their full holdings by the end of the third quarter. Intriguingly, Renaissance Technologies sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $0.8 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund dumped about $0.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to The Meet Group, Inc. (NASDAQ:MEET). These stocks are Noodles & Co (NASDAQ:NDLS), StarTek, Inc. (NYSE:SRT), Cambium Networks Corporation (NASDAQ:CMBM), and Liquidity Services, Inc. (NASDAQ:LQDT). This group of stocks’ market values match MEET’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NDLS | 14 | 78633 | 2 |
| SRT | 4 | 6084 | 1 |
| CMBM | 7 | 6898 | -4 |
| LQDT | 8 | 33497 | 1 |
| Average | 8.25 | 31278 | 0 |
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 $31 million. That figure was $50 million in MEET’s case. Noodles & Co (NASDAQ:NDLS) is the most popular stock in this table. On the other hand StarTek, Inc. (NYSE:SRT) is the least popular one with only 4 bullish hedge fund positions. The Meet Group, Inc. (NASDAQ:MEET) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on MEET as the stock returned 47.6% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
