Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in AVX Corporation (NYSE:AVX)? The smart money sentiment can provide an answer to this question.
AVX Corporation (NYSE:AVX) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of June. 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 Liberty Expedia Holdings, Inc. (NASDAQ:LEXEA), Covetrus, Inc. (NASDAQ:CVET), and Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) to gather more data points. Our calculations also showed that AVX isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the recent hedge fund action encompassing AVX Corporation (NYSE:AVX).
How have hedgies been trading AVX Corporation (NYSE:AVX)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in AVX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of AVX Corporation (NYSE:AVX), with a stake worth $60 million reported as of the end of March. Trailing Royce & Associates was Sensato Capital Management, which amassed a stake valued at $4.8 million. Marshall Wace LLP, Renaissance Technologies, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that AVX Corporation (NYSE:AVX) has experienced bearish sentiment from the smart money, logic holds that there is a sect of money managers who sold off their entire stakes heading into Q3. At the top of the heap, Noam Gottesman’s GLG Partners dropped the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth close to $7.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $0.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as AVX Corporation (NYSE:AVX) but similarly valued. We will take a look at Liberty Expedia Holdings, Inc. (NASDAQ:LEXEA), Covetrus, Inc. (NASDAQ:CVET), Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB), and Cogent Communications Holdings, Inc. (NASDAQ:CCOI). This group of stocks’ market valuations resemble AVX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEXEA | 30 | 381843 | 1 |
| CVET | 20 | 426961 | 2 |
| OMAB | 7 | 54603 | 1 |
| CCOI | 18 | 286498 | -1 |
| Average | 18.75 | 287476 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $81 million in AVX’s case. Liberty Expedia Holdings, Inc. (NASDAQ:LEXEA) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) is the least popular one with only 7 bullish hedge fund positions. AVX Corporation (NYSE:AVX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AVX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AVX investors were disappointed as the stock returned -7.8% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
