Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Frequency Electronics, Inc. (NASDAQ:FEIM) to find out whether there were any major changes in hedge funds’ views.
Frequency Electronics, Inc. (NASDAQ:FEIM) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that FEIM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare FEIM to other stocks including China Automotive Systems, Inc. (NASDAQ:CAAS), NeuroBo Pharmaceuticals, Inc. (NASDAQ:NRBO), and Riverview Bancorp, Inc. (NASDAQ:RVSB) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Gifford Combs of Dalton Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a glance at the latest hedge fund action regarding Frequency Electronics, Inc. (NASDAQ:FEIM).
What have hedge funds been doing with Frequency Electronics, Inc. (NASDAQ:FEIM)?
At the end of September, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FEIM over the last 21 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Royce & Associates, managed by Chuck Royce, holds the biggest position in Frequency Electronics, Inc. (NASDAQ:FEIM). Royce & Associates has a $6.8 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $2.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish comprise Israel Englander’s Millennium Management, Gifford Combs’s Dalton Investments and . In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Frequency Electronics, Inc. (NASDAQ:FEIM), around 0.07% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to FEIM.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now take a look at hedge fund activity in other stocks similar to Frequency Electronics, Inc. (NASDAQ:FEIM). We will take a look at China Automotive Systems, Inc. (NASDAQ:CAAS), NeuroBo Pharmaceuticals, Inc. (NASDAQ:NRBO), Riverview Bancorp, Inc. (NASDAQ:RVSB), CONSOL Coal Resources LP (NYSE:CCR), California BanCorp (NASDAQ:CALB), Charah Solutions, Inc. (NYSE:CHRA), and Neuronetics, Inc. (NASDAQ:STIM). This group of stocks’ market valuations are similar to FEIM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CAAS | 1 | 1503 | 0 |
| NRBO | 2 | 1406 | -1 |
| RVSB | 10 | 4842 | 1 |
| CCR | 2 | 18344 | 0 |
| CALB | 3 | 3468 | -1 |
| CHRA | 3 | 15167 | -3 |
| STIM | 14 | 26688 | 6 |
| Average | 5 | 10203 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $10 million in FEIM’s case. Neuronetics, Inc. (NASDAQ:STIM) is the most popular stock in this table. On the other hand China Automotive Systems, Inc. (NASDAQ:CAAS) is the least popular one with only 1 bullish hedge fund positions. Frequency Electronics, Inc. (NASDAQ:FEIM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FEIM is 46.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately FEIM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FEIM investors were disappointed as the stock returned -0.5% since the end of September (through 11/27) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
