As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about HEXO Corp. (NYSE:HEXO).
HEXO Corp. (NYSE:HEXO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds’ portfolios at the end of the third 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 Cryolife Inc (NYSE:CRY), Douglas Dynamics Inc (NYSE:PLOW), and PC Connection, Inc. (NASDAQ:CNXN) to gather more data points. Our calculations also showed that HEXO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most market participants, hedge funds are perceived as slow, old investment tools of years past. While there are over 8000 funds in operation at the moment, Our experts choose to focus on the top tier of this group, approximately 750 funds. Most estimates calculate that this group of people orchestrate most of the hedge fund industry’s total capital, and by shadowing their top equity investments, Insider Monkey has formulated several investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Philip Hempleman of Ardsley Partners
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a look at the new hedge fund action surrounding HEXO Corp. (NYSE:HEXO).
How are hedge funds trading HEXO Corp. (NYSE:HEXO)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HEXO over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Millennium Management held the most valuable stake in HEXO Corp. (NYSE:HEXO), which was worth $6.3 million at the end of the third quarter. On the second spot was Sculptor Capital which amassed $1.6 million worth of shares. Miller Value Partners, Citadel Investment Group, and Ardsley Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Signition LP allocated the biggest weight to HEXO Corp. (NYSE:HEXO), around 0.78% of its 13F portfolio. Ardsley Partners is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to HEXO.
Judging by the fact that HEXO Corp. (NYSE:HEXO) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers that elected to cut their positions entirely heading into Q4. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors dumped the biggest stake of all the hedgies watched by Insider Monkey, totaling close to $0.9 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $0.5 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to HEXO Corp. (NYSE:HEXO). These stocks are Cryolife Inc (NYSE:CRY), Douglas Dynamics Inc (NYSE:PLOW), PC Connection, Inc. (NASDAQ:CNXN), and NextGen Healthcare, Inc. (NASDAQ:NXGN). All of these stocks’ market caps are similar to HEXO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRY | 8 | 20061 | -7 |
| PLOW | 10 | 19937 | 3 |
| CNXN | 11 | 50307 | 3 |
| NXGN | 12 | 32218 | -2 |
| Average | 10.25 | 30631 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $9 million in HEXO’s case. NextGen Healthcare, Inc. (NASDAQ:NXGN) is the most popular stock in this table. On the other hand Cryolife Inc (NYSE:CRY) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks HEXO Corp. (NYSE:HEXO) is even less popular than CRY. Hedge funds dodged a bullet by taking a bearish stance towards HEXO. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HEXO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HEXO investors were disappointed as the stock returned -45.5% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
