With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was HC2 Holdings Inc (NYSE:HCHC).
Is HC2 Holdings Inc (NYSE:HCHC) ready to rally soon? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund positions were cut by 1 in recent months. Our calculations also showed that HCHC 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.
Eric Singer of VIEX Capital
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 take a gander at the key hedge fund action encompassing HC2 Holdings Inc (NYSE:HCHC).
How have hedgies been trading HC2 Holdings Inc (NYSE:HCHC)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in HCHC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Jim Roumell’s Roumell Asset Management has the most valuable position in HC2 Holdings Inc (NYSE:HCHC), worth close to $1.1 million, comprising 2.5% of its total 13F portfolio. The second largest stake is held by Israel Englander of Millennium Management, with a $0.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism encompass Richard Driehaus’s Driehaus Capital, Christian Leone’s Luxor Capital Group and Eric Singer’s VIEX Capital Advisors. In terms of the portfolio weights assigned to each position Roumell Asset Management allocated the biggest weight to HC2 Holdings Inc (NYSE:HCHC), around 2.54% of its 13F portfolio. VIEX Capital Advisors is also relatively very bullish on the stock, earmarking 0.3 percent of its 13F equity portfolio to HCHC.
Since HC2 Holdings Inc (NYSE:HCHC) has faced bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their positions entirely last quarter. Intriguingly, William C. Martin’s Raging Capital Management cut the largest position of all the hedgies followed by Insider Monkey, worth an estimated $2.1 million in stock. Renaissance Technologies, also dropped its stock, about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HC2 Holdings Inc (NYSE:HCHC) but similarly valued. These stocks are Vaccinex, Inc. (NASDAQ:VCNX), Riverview Financial Corporation (NASDAQ:RIVE), Menlo Therapeutics Inc. (NASDAQ:MNLO), and Dean Foods Company (NYSE:DF). All of these stocks’ market caps are closest to HCHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VCNX | 2 | 9256 | 1 |
| RIVE | 5 | 9321 | 2 |
| MNLO | 9 | 40281 | -1 |
| DF | 9 | 1672 | -1 |
| Average | 6.25 | 15133 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $5 million in HCHC’s case. Menlo Therapeutics Inc. (NASDAQ:MNLO) is the most popular stock in this table. On the other hand Vaccinex, Inc. (NASDAQ:VCNX) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks HC2 Holdings Inc (NYSE:HCHC) is more popular among hedge funds. 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 HCHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HCHC were disappointed as the stock returned -8.9% 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.
