Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Farmer Brothers Co. (NASDAQ:FARM) based on that data.
Farmer Brothers Co. (NASDAQ:FARM) was in 16 hedge funds’ portfolios at the end of the first quarter of 2020. FARM shareholders have witnessed an increase in enthusiasm from smart money of late. There were 12 hedge funds in our database with FARM positions at the end of the previous quarter. Our calculations also showed that FARM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Paul Marshall of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the recent hedge fund action encompassing Farmer Brothers Co. (NASDAQ:FARM).
Hedge fund activity in Farmer Brothers Co. (NASDAQ:FARM)
Heading into the second quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the fourth quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in FARM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Trigran Investments was the largest shareholder of Farmer Brothers Co. (NASDAQ:FARM), with a stake worth $15.6 million reported as of the end of September. Trailing Trigran Investments was Levin Easterly Partners, which amassed a stake valued at $8.9 million. Adage Capital Management, Renaissance Technologies, and Archon Capital 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 Trigran Investments allocated the biggest weight to Farmer Brothers Co. (NASDAQ:FARM), around 3.42% of its 13F portfolio. Archon Capital Management is also relatively very bullish on the stock, setting aside 0.65 percent of its 13F equity portfolio to FARM.
Consequently, specific money managers have been driving this bullishness. Archon Capital Management, managed by Constantinos J. Christofilis, initiated the most valuable position in Farmer Brothers Co. (NASDAQ:FARM). Archon Capital Management had $1.8 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $0.1 million investment in the stock during the quarter. The other funds with brand new FARM positions are Parvinder Thiara’s Athanor Capital and Ken Griffin’s Citadel Investment Group.
Let’s also examine hedge fund activity in other stocks similar to Farmer Brothers Co. (NASDAQ:FARM). We will take a look at Affimed NV (NASDAQ:AFMD), Altisource Portfolio Solutions S.A. (NASDAQ:ASPS), Advanced Emissions Solutions, Inc. (NASDAQ:ADES), and Enzo Biochem, Inc. (NYSE:ENZ). This group of stocks’ market valuations match FARM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AFMD | 16 | 21432 | 3 |
| ASPS | 8 | 7589 | 1 |
| ADES | 8 | 22010 | -2 |
| ENZ | 9 | 25971 | -2 |
| Average | 10.25 | 19251 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $40 million in FARM’s case. Affimed NV (NASDAQ:AFMD) is the most popular stock in this table. On the other hand Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) is the least popular one with only 8 bullish hedge fund positions. Farmer Brothers Co. (NASDAQ:FARM) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately FARM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FARM were disappointed as the stock returned 1.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
