Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. 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 Conn’s, Inc. (NASDAQ:CONN).
Conn’s, Inc. (NASDAQ:CONN) has experienced an increase in enthusiasm from smart money of late. CONN was in 16 hedge funds’ portfolios at the end of the first quarter of 2019. There were 14 hedge funds in our database with CONN holdings at the end of the previous quarter. Our calculations also showed that conn isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are tons of signals stock traders use to analyze stocks. Two of the best signals are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best hedge fund managers can outpace the market by a healthy margin (see the details here).
We’re going to take a look at the fresh hedge fund action encompassing Conn’s, Inc. (NASDAQ:CONN).
How are hedge funds trading Conn’s, Inc. (NASDAQ:CONN)?
At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the fourth quarter of 2018. By comparison, 16 hedge funds held shares or bullish call options in CONN a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Anchorage Advisors held the most valuable stake in Conn’s, Inc. (NASDAQ:CONN), which was worth $66.3 million at the end of the first quarter. On the second spot was Marshall Wace LLP which amassed $17.7 million worth of shares. Moreover, Portolan Capital Management, Millennium Management, and Buckingham Capital Management were also bullish on Conn’s, Inc. (NASDAQ:CONN), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key hedge funds have been driving this bullishness. Interval Partners, managed by Gregg Moskowitz, created the biggest call position in Conn’s, Inc. (NASDAQ:CONN). Interval Partners had $3.2 million invested in the company at the end of the quarter. Mark Broach’s Manatuck Hill Partners also initiated a $2.7 million position during the quarter. The following funds were also among the new CONN investors: Jim Simons’s Renaissance Technologies, Benjamin A. Smith’s Laurion Capital Management, and Gregg Moskowitz’s Interval Partners.
Let’s also examine hedge fund activity in other stocks similar to Conn’s, Inc. (NASDAQ:CONN). These stocks are Superior Energy Services, Inc. (NYSE:SPN), Heidrick & Struggles International, Inc. (NASDAQ:HSII), Entercom Communications Corp. (NYSE:ETM), and Dermira Inc (NASDAQ:DERM). All of these stocks’ market caps match CONN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPN | 25 | 112729 | 5 |
| HSII | 18 | 131951 | -4 |
| ETM | 21 | 95501 | 5 |
| DERM | 24 | 202565 | 8 |
| Average | 22 | 135687 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $126 million in CONN’s case. Superior Energy Services, Inc. (NYSE:SPN) is the most popular stock in this table. On the other hand Heidrick & Struggles International, Inc. (NASDAQ:HSII) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Conn’s, Inc. (NASDAQ:CONN) is even less popular than HSII. Hedge funds dodged a bullet by taking a bearish stance towards CONN. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CONN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CONN investors were disappointed as the stock returned -23.3% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
