Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Extreme Networks, Inc (NASDAQ:EXTR) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of the first quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Continental Building Products Inc (NYSE:CBPX), Mr. Cooper Group Inc. (NASDAQ:COOP), and AK Steel Holding Corporation (NYSE:AKS) to gather more data points.
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.
Didric Cederholm of Lion Point Capital
Let’s view the new hedge fund action surrounding Extreme Networks, Inc (NASDAQ:EXTR).
Hedge fund activity in Extreme Networks, Inc (NASDAQ:EXTR)
At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in EXTR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in Extreme Networks, Inc (NASDAQ:EXTR), which was worth $24.6 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $19.1 million worth of shares. Moreover, Millennium Management, Citadel Investment Group, and Lion Point were also bullish on Extreme Networks, Inc (NASDAQ:EXTR), allocating a large percentage of their portfolios to this stock.
Seeing as Extreme Networks, Inc (NASDAQ:EXTR) has faced a decline in interest from hedge fund managers, logic holds that there were a few hedge funds that slashed their full holdings heading into Q3. At the top of the heap, Eric Singer’s VIEX Capital Advisors said goodbye to the largest position of the 700 funds watched by Insider Monkey, comprising about $14.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $5.8 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Extreme Networks, Inc (NASDAQ:EXTR) but similarly valued. These stocks are Continental Building Products Inc (NYSE:CBPX), Mr. Cooper Group Inc. (NASDAQ:COOP), AK Steel Holding Corporation (NYSE:AKS), and Chase Corporation (NYSE:CCF). This group of stocks’ market values resemble EXTR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CBPX | 20 | 87312 | 4 |
| COOP | 27 | 310225 | -1 |
| AKS | 13 | 29045 | -2 |
| CCF | 9 | 89059 | 4 |
| Average | 17.25 | 128910 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $97 million in EXTR’s case. Mr. Cooper Group Inc. (NASDAQ:COOP) is the most popular stock in this table. On the other hand Chase Corporation (NYSE:CCF) is the least popular one with only 9 bullish hedge fund positions. Extreme Networks, Inc (NASDAQ:EXTR) 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 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. Unfortunately EXTR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EXTR were disappointed as the stock returned -23.2% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
