Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Mohawk Group Holdings, Inc. (NASDAQ:MWK) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of September. At the end of this article we will also compare MWK to other stocks including Capital Senior Living Corporation (NYSE:CSU), Acorda Therapeutics Inc (NASDAQ:ACOR), and Red Violet, Inc. (NASDAQ:RDVT) to get a better sense of its popularity.
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.
Sander Gerber of Hudson Bay Capital Management
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 we’re going to view the recent hedge fund action surrounding Mohawk Group Holdings, Inc. (NASDAQ:MWK).
What does smart money think about Mohawk Group Holdings, Inc. (NASDAQ:MWK)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MWK over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Mohawk Group Holdings, Inc. (NASDAQ:MWK) was held by Intrinsic Edge Capital, which reported holding $2.7 million worth of stock at the end of September. It was followed by Hudson Bay Capital Management with a $2.1 million position. The only other hedge fund that is bullish on the company was Springbok Capital.
Judging by the fact that Mohawk Group Holdings, Inc. (NASDAQ:MWK) has faced a decline in interest from the smart money, it’s safe to say that there was a specific group of hedge funds that elected to cut their positions entirely heading into Q4. Intriguingly, Jeffrey Moskowitz’s Harvey Partners said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, totaling close to $1.2 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $0.1 million worth. These moves are important to note, 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 Mohawk Group Holdings, Inc. (NASDAQ:MWK). These stocks are Capital Senior Living Corporation (NYSE:CSU), Acorda Therapeutics Inc (NASDAQ:ACOR), Red Violet, Inc. (NASDAQ:RDVT), and Ultralife Corp. (NASDAQ:ULBI). All of these stocks’ market caps match MWK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CSU | 10 | 52380 | -4 |
| ACOR | 15 | 41326 | -1 |
| RDVT | 2 | 2375 | 1 |
| ULBI | 3 | 3515 | -1 |
| Average | 7.5 | 24899 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $5 million in MWK’s case. Acorda Therapeutics Inc (NASDAQ:ACOR) is the most popular stock in this table. On the other hand Red Violet, Inc. (NASDAQ:RDVT) is the least popular one with only 2 bullish hedge fund positions. Mohawk Group Holdings, Inc. (NASDAQ:MWK) is not the least popular stock in this group but hedge fund interest is still below average. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MWK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MWK investors were disappointed as the stock returned -23.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.