Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Inter Parfums, Inc. (NASDAQ:IPAR) investors should pay attention to a decrease in hedge fund interest of late. Our calculations also showed that IPAR 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
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 view the new hedge fund action regarding Inter Parfums, Inc. (NASDAQ:IPAR).
Hedge fund activity in Inter Parfums, Inc. (NASDAQ:IPAR)
Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards IPAR over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Inter Parfums, Inc. (NASDAQ:IPAR), with a stake worth $26.4 million reported as of the end of March. Trailing Royce & Associates was Horizon Asset Management, which amassed a stake valued at $13.2 million. Millennium Management, Columbus Circle Investors, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Inter Parfums, Inc. (NASDAQ:IPAR) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of money managers who sold off their full holdings by the end of the second quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the 750 funds watched by Insider Monkey, valued at close to $5.9 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund dropped about $3.5 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 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 Inter Parfums, Inc. (NASDAQ:IPAR) but similarly valued. We will take a look at LegacyTexas Financial Group Inc (NASDAQ:LTXB), NetScout Systems, Inc. (NASDAQ:NTCT), Colony Credit Real Estate, Inc. (NYSE:CLNC), and Steelcase Inc. (NYSE:SCS). This group of stocks’ market values are closest to IPAR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LTXB | 15 | 67499 | 3 |
| NTCT | 14 | 118278 | 2 |
| CLNC | 8 | 21487 | 2 |
| SCS | 19 | 71817 | -5 |
| Average | 14 | 69770 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $92 million in IPAR’s case. Steelcase Inc. (NYSE:SCS) is the most popular stock in this table. On the other hand Colony Credit Real Estate, Inc. (NYSE:CLNC) is the least popular one with only 8 bullish hedge fund positions. Inter Parfums, Inc. (NASDAQ:IPAR) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on IPAR, though not to the same extent, as the stock returned 5.7% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
