Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is H&R Block, Inc. (NYSE:HRB) a buy here? The smart money is betting on the stock. The number of bullish hedge fund bets went up by 9 lately. Our calculations also showed that HRB isn’t among the 30 most popular stocks among hedge funds (view 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’ 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 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 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 take a gander at the recent hedge fund action encompassing H&R Block, Inc. (NYSE:HRB).
Hedge fund activity in H&R Block, Inc. (NYSE:HRB)
At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 56% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HRB over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in H&R Block, Inc. (NYSE:HRB) was held by AQR Capital Management, which reported holding $83.8 million worth of stock at the end of March. It was followed by D E Shaw with a $75.7 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and GLG Partners.
As one would reasonably expect, specific money managers were breaking ground themselves. Renaissance Technologies, assembled the biggest position in H&R Block, Inc. (NYSE:HRB). Renaissance Technologies had $49.1 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also initiated a $19.6 million position during the quarter. The other funds with brand new HRB positions are Israel Englander’s Millennium Management, Paul Tudor Jones’s Tudor Investment Corp, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as H&R Block, Inc. (NYSE:HRB) but similarly valued. These stocks are Chemed Corporation (NYSE:CHE), Parsley Energy Inc (NYSE:PE), Oshkosh Corporation (NYSE:OSK), and James Hardie Industries plc (NYSE:JHX). This group of stocks’ market values are closest to HRB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHE | 21 | 406059 | 0 |
| PE | 36 | 785649 | 2 |
| OSK | 24 | 402471 | 0 |
| JHX | 2 | 4519 | 0 |
| Average | 20.75 | 399675 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $400 million. That figure was $381 million in HRB’s case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 2 bullish hedge fund positions. H&R Block, Inc. (NYSE:HRB) 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 HRB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HRB were disappointed as the stock returned -18.5% 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.
