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 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-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 Intelligent Systems Corporation (NYSEAMERICAN:INS).
Hedge fund interest in Intelligent Systems Corporation (NYSEAMERICAN:INS) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare INS to other stocks including Surgery Partners, Inc. (NASDAQ:SGRY), Home Bancorp, Inc. (NASDAQ:HBCP), and ObsEva SA (NASDAQ:OBSV) to get a better sense of its popularity.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
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. Now let’s check out the recent hedge fund action regarding Intelligent Systems Corporation (NYSEAMERICAN:INS).
Hedge fund activity in Intelligent Systems Corporation (NYSEAMERICAN:INS)
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards INS over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Wallace R. Weitz & Co., managed by Wallace Weitz, holds the most valuable position in Intelligent Systems Corporation (NYSEAMERICAN:INS). Wallace R. Weitz & Co. has a $89.9 million position in the stock, comprising 3.7% of its 13F portfolio. Coming in second is Renaissance Technologies, founded by Jim Simons, which holds a $4.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Cliff Asness’s AQR Capital Management and Donald Sussman’s Paloma Partners. In terms of the portfolio weights assigned to each position Wallace R. Weitz & Co. allocated the biggest weight to Intelligent Systems Corporation (NYSEAMERICAN:INS), around 3.65% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to INS.
Since Intelligent Systems Corporation (NYSEAMERICAN:INS) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few funds who sold off their full holdings by the end of the third quarter. Intriguingly, Israel Englander’s Millennium Management dropped the largest stake of all the hedgies watched by Insider Monkey, worth about $0.3 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dropped about $0.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Intelligent Systems Corporation (NYSEAMERICAN:INS) but similarly valued. These stocks are Surgery Partners, Inc. (NASDAQ:SGRY), Home Bancorp, Inc. (NASDAQ:HBCP), ObsEva SA (NASDAQ:OBSV), and Lands’ End, Inc. (NASDAQ:LE). All of these stocks’ market caps are closest to INS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SGRY | 12 | 31532 | 1 |
| HBCP | 5 | 10676 | 3 |
| OBSV | 8 | 49359 | 0 |
| LE | 12 | 69409 | 0 |
| Average | 9.25 | 40244 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $100 million in INS’s case. Surgery Partners, Inc. (NASDAQ:SGRY) is the most popular stock in this table. On the other hand Home Bancorp, Inc. (NASDAQ:HBCP) is the least popular one with only 5 bullish hedge fund positions. Intelligent Systems Corporation (NYSEAMERICAN:INS) 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. 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. Unfortunately INS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); INS investors were disappointed as the stock returned 4.8% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
