It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like CSW Industrials, Inc. (NASDAQ:CSWI).
Hedge fund interest in CSW Industrials, Inc. (NASDAQ:CSWI) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Kelly Services, Inc. (NASDAQ:KELYA), Endo International plc (NASDAQ:ENDP), and M/A-COM Technology Solutions Holdings (NASDAQ:MTSI) to gather more data points. Our calculations also showed that CSWI isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the new hedge fund action regarding CSW Industrials, Inc. (NASDAQ:CSWI).
What does smart money think about CSW Industrials, Inc. (NASDAQ:CSWI)?
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CSWI over the last 16 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in CSW Industrials, Inc. (NASDAQ:CSWI) was held by Cove Street Capital, which reported holding $16.7 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $13.1 million position. Other investors bullish on the company included Arrowstreet Capital, Moerus Capital Management, and Millennium Management.
Judging by the fact that CSW Industrials, Inc. (NASDAQ:CSWI) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds that slashed their full holdings by the end of the second quarter. Interestingly, Michael Platt and William Reeves’s BlueCrest Capital Mgmt. sold off the biggest investment of all the hedgies tracked by Insider Monkey, comprising close to $0.3 million in stock. Thomas Bailard’s fund, Bailard Inc, also sold off its stock, about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to CSW Industrials, Inc. (NASDAQ:CSWI). We will take a look at Kelly Services, Inc. (NASDAQ:KELYA), Endo International plc (NASDAQ:ENDP), M/A-COM Technology Solutions Holdings (NASDAQ:MTSI), and Turning Point Brands, Inc. (NYSE:TPB). This group of stocks’ market caps match CSWI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KELYA | 10 | 23858 | -3 |
| ENDP | 21 | 252668 | 2 |
| MTSI | 17 | 176112 | 1 |
| TPB | 14 | 63437 | -2 |
| Average | 15.5 | 129019 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $61 million in CSWI’s case. Endo International plc (NASDAQ:ENDP) is the most popular stock in this table. On the other hand Kelly Services, Inc. (NASDAQ:KELYA) is the least popular one with only 10 bullish hedge fund positions. CSW Industrials, Inc. (NASDAQ:CSWI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CSWI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CSWI were disappointed as the stock returned 1.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
