Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: CSW Industrials, Inc. (NASDAQ:CSWI).
CSW Industrials, Inc. (NASDAQ:CSWI) was in 19 hedge funds’ portfolios at the end of the first quarter of 2019. CSWI has experienced an increase in hedge fund sentiment recently. There were 16 hedge funds in our database with CSWI holdings at the end of the previous quarter. Our calculations also showed that cswi 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to review the latest hedge fund action regarding CSW Industrials, Inc. (NASDAQ:CSWI).
What have hedge funds been doing with CSW Industrials, Inc. (NASDAQ:CSWI)?
Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CSWI over the last 15 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Cove Street Capital was the largest shareholder of CSW Industrials, Inc. (NASDAQ:CSWI), with a stake worth $17.3 million reported as of the end of March. Trailing Cove Street Capital was Renaissance Technologies, which amassed a stake valued at $14.2 million. Moerus Capital Management, Millennium Management, and AQR Capital Management 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. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most outsized position in CSW Industrials, Inc. (NASDAQ:CSWI). Arrowstreet Capital had $1.9 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Platt and William Reeves’s BlueCrest Capital Mgmt., Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, and Joel Greenblatt’s Gotham Asset Management.
Let’s check out hedge fund activity in other stocks similar to CSW Industrials, Inc. (NASDAQ:CSWI). These stocks are Eidos Therapeutics, Inc. (NASDAQ:EIDX), Waitr Holdings Inc. (NASDAQ:WTRH), General American Investors Company, Inc. (NYSE:GAM), and MBIA Inc. (NYSE:MBI). This group of stocks’ market values are similar to CSWI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EIDX | 8 | 191566 | 0 |
| WTRH | 22 | 233629 | 4 |
| GAM | 5 | 26578 | -1 |
| MBI | 19 | 162216 | 1 |
| Average | 13.5 | 153497 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $59 million in CSWI’s case. Waitr Holdings Inc. (NASDAQ:WTRH) is the most popular stock in this table. On the other hand General American Investors Company, Inc. (NYSE:GAM) is the least popular one with only 5 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CSWI as the stock returned 10.9% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
