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 Houston Wire & Cable Company (NASDAQ:HWCC).
Houston Wire & Cable Company (NASDAQ:HWCC) was in 7 hedge funds’ portfolios at the end of September. HWCC has experienced an increase in enthusiasm from smart money lately. There were 5 hedge funds in our database with HWCC positions at the end of the previous quarter. Our calculations also showed that HWCC 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.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Chuck Royce of Royce & Associates
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. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding Houston Wire & Cable Company (NASDAQ:HWCC).
What have hedge funds been doing with Houston Wire & Cable Company (NASDAQ:HWCC)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in HWCC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Royce & Associates, managed by Chuck Royce, holds the most valuable position in Houston Wire & Cable Company (NASDAQ:HWCC). Royce & Associates has a $5.7 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Rutabaga Capital Management, managed by Peter Schliemann, which holds a $5.1 million position; 1.8% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish consist of Bradley Louis Radoff’s Fondren Management, Renaissance Technologies and Jim Roumell’s Roumell Asset Management. In terms of the portfolio weights assigned to each position Fondren Management allocated the biggest weight to Houston Wire & Cable Company (NASDAQ:HWCC), around 2.74% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, dishing out 2.62 percent of its 13F equity portfolio to HWCC.
As aggregate interest increased, some big names have jumped into Houston Wire & Cable Company (NASDAQ:HWCC) headfirst. Fondren Management, managed by Bradley Louis Radoff, created the largest position in Houston Wire & Cable Company (NASDAQ:HWCC). Fondren Management had $3.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.1 million investment in the stock during the quarter.
Let’s check out hedge fund activity in other stocks similar to Houston Wire & Cable Company (NASDAQ:HWCC). We will take a look at NantHealth, Inc. (NASDAQ:NH), Entasis Therapeutics Holdings Inc. (NASDAQ:ETTX), Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS), and Arotech Corporation (NASDAQ:ARTX). This group of stocks’ market values are closest to HWCC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NH | 7 | 699 | 2 |
| ETTX | 2 | 8151 | 0 |
| SHOS | 7 | 25475 | -1 |
| ARTX | 8 | 11444 | 2 |
| Average | 6 | 11442 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $18 million in HWCC’s case. Arotech Corporation (NASDAQ:ARTX) is the most popular stock in this table. On the other hand Entasis Therapeutics Holdings Inc. (NASDAQ:ETTX) is the least popular one with only 2 bullish hedge fund positions. Houston Wire & Cable Company (NASDAQ:HWCC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HWCC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HWCC were disappointed as the stock returned -16.7% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
