Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Barnes & Noble Education Inc (NYSE:BNED).
Barnes & Noble Education Inc (NYSE:BNED) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds’ portfolios at the end of the third quarter of 2018. 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 J. Jill, Inc. (NYSE:JILL), Sify Technologies Limited (NASDAQ:SIFY), and Arlington Asset Investment Corp (NYSE:AI) 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s go over the new hedge fund action surrounding Barnes & Noble Education Inc (NYSE:BNED).
What have hedge funds been doing with Barnes & Noble Education Inc (NYSE:BNED)?
Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, no change from the second quarter of 2018. By comparison, 19 hedge funds held shares or bullish call options in BNED heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Barnes & Noble Education Inc (NYSE:BNED) was held by Abrams Capital Management, which reported holding $33.8 million worth of stock at the end of September. It was followed by Ancora Advisors with a $5.3 million position. Other investors bullish on the company included MFP Investors, Two Sigma Advisors, and Arrowstreet Capital.
Due to the fact that Barnes & Noble Education Inc (NYSE:BNED) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedge funds that slashed their full holdings heading into Q3. Intriguingly, Israel Englander’s Millennium Management cut the largest stake of the 700 funds monitored by Insider Monkey, valued at about $1.2 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund cut about $0.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Barnes & Noble Education Inc (NYSE:BNED) but similarly valued. We will take a look at J. Jill, Inc. (NYSE:JILL), Sify Technologies Limited (NASDAQ:SIFY), Arlington Asset Investment Corp (NYSE:AI), and Corindus Vascular Robotics Inc (NYSE:CVRS). This group of stocks’ market caps resemble BNED’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JILL | 12 | 13187 | 4 |
| SIFY | 1 | 802 | -1 |
| AI | 5 | 11164 | -2 |
| CVRS | 8 | 62250 | 1 |
| Average | 6.5 | 21851 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $46 million in BNED’s case. J. Jill, Inc. (NYSE:JILL) is the most popular stock in this table. On the other hand Sify Technologies Limited (NASDAQ:SIFY) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Barnes & Noble Education Inc (NYSE:BNED) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
