Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Encore Wire Corporation (NASDAQ:WIRE) from the perspective of those elite funds.
Encore Wire Corporation (NASDAQ:WIRE) investors should pay attention to a decrease in hedge fund interest recently. WIRE was in 15 hedge funds’ portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with WIRE holdings at the end of the previous quarter. Our calculations also showed that WIRE 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.
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 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. We’re going to go over the fresh hedge fund action regarding Encore Wire Corporation (NASDAQ:WIRE).
Hedge fund activity in Encore Wire Corporation (NASDAQ:WIRE)
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in WIRE a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Encore Wire Corporation (NASDAQ:WIRE), worth close to $7.8 million, comprising 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Noam Gottesman of GLG Partners, with a $7.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism contain Cliff Asness’s AQR Capital Management, Renaissance Technologies and Mark Lee’s Forest Hill Capital.
Since Encore Wire Corporation (NASDAQ:WIRE) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of funds that slashed their positions entirely by the end of the second quarter. It’s worth mentioning that Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital said goodbye to the largest investment of all the hedgies followed by Insider Monkey, comprising about $0.6 million in call options. Matthew Hulsizer’s fund, PEAK6 Capital Management, also sold off its call options, about $0.4 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds by the end of the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Encore Wire Corporation (NASDAQ:WIRE) but similarly valued. These stocks are Lakeland Financial Corporation (NASDAQ:LKFN), Essential Properties Realty Trust, Inc. (NYSE:EPRT), Hollysys Automation Technologies Ltd (NASDAQ:HOLI), and TriCo Bancshares (NASDAQ:TCBK). This group of stocks’ market caps are closest to WIRE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LKFN | 11 | 19717 | 0 |
| EPRT | 15 | 111447 | 2 |
| HOLI | 13 | 68693 | -1 |
| TCBK | 8 | 36966 | -1 |
| Average | 11.75 | 59206 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $48 million in WIRE’s case. Essential Properties Realty Trust, Inc. (NYSE:EPRT) is the most popular stock in this table. On the other hand TriCo Bancshares (NASDAQ:TCBK) is the least popular one with only 8 bullish hedge fund positions. Encore Wire Corporation (NASDAQ:WIRE) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WIRE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WIRE were disappointed as the stock returned -3.9% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
