Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Spartan Motors Inc (NASDAQ:SPAR).
Spartan Motors Inc (NASDAQ:SPAR) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that SPAR 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.
Chuck Royce of Royce & Associates
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. We’re going to check out the recent hedge fund action regarding Spartan Motors Inc (NASDAQ:SPAR).
How are hedge funds trading Spartan Motors Inc (NASDAQ:SPAR)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SPAR over the last 17 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the number one position in Spartan Motors Inc (NASDAQ:SPAR). Royce & Associates has a $18.2 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies which holds a $12.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Israel Englander’s Millennium Management, Mark Broach’s Manatuck Hill Partners and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Manatuck Hill Partners allocated the biggest weight to Spartan Motors Inc (NASDAQ:SPAR), around 3.24% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, dishing out 0.64 percent of its 13F equity portfolio to SPAR.
As aggregate interest increased, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Spartan Motors Inc (NASDAQ:SPAR). Arrowstreet Capital had $1.3 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.5 million position during the quarter. The only other fund with a new position in the stock is Donald Sussman’s Paloma Partners.
Let’s now review hedge fund activity in other stocks similar to Spartan Motors Inc (NASDAQ:SPAR). We will take a look at Financial Institutions, Inc. (NASDAQ:FISI), Marine Products Corporation (NYSE:MPX), Hemisphere Media Group Inc (NASDAQ:HMTV), and Primo Water Corporation (NASDAQ:PRMW). This group of stocks’ market valuations match SPAR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FISI | 10 | 38813 | -1 |
| MPX | 5 | 15865 | 0 |
| HMTV | 7 | 36695 | -1 |
| PRMW | 17 | 106864 | 5 |
| Average | 9.75 | 49559 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $61 million in SPAR’s case. Primo Water Corporation (NASDAQ:PRMW) is the most popular stock in this table. On the other hand Marine Products Corporation (NYSE:MPX) is the least popular one with only 5 bullish hedge fund positions. Spartan Motors Inc (NASDAQ:SPAR) 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 SPAR as the stock returned 29.7% 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.
