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. Between November 1, 2014 and October 30 of this year, less than 49% of the stocks in the S&P 500 beat the market. However, hedge funds’ top 30 stock picks from the index had a much higher success rate than this, at 63%. The returns from these 30 stocks also easily bested the broader market, at 9.5% compared to 5.2%, despite there being a few duds in there like Micron and Anadarko (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
SL Industries, Inc. (NYSEAMEX:SLI) has seen no change in the hedge fund sentiment lately and the stock was in 6 hedge funds’ portfolios at the end of the third quarter of 2015. 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 Violin Memory Inc (NYSE:VMEM), Collectors Universe, Inc. (NASDAQ:CLCT), and Dixie Group Inc (NASDAQ:DXYN) to gather more data points.
Follow Sl Industries Inc (NYSEMKT:SLI)
Follow Sl Industries Inc (NYSEMKT:SLI)
To most traders, hedge funds are viewed as unimportant, outdated financial tools of yesteryear. While there are greater than 8000 funds with their doors open today, we look at the leaders of this group, about 700 funds. These hedge fund managers direct the majority of the hedge fund industry’s total capital, and by keeping an eye on their matchless stock picks, Insider Monkey has unsheathed various investment strategies that have historically outrun the broader indices. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per year for a decade in their back tests.
Keeping this in mind, we’re going to take a gander at the new action regarding SL Industries, Inc. (NYSEAMEX:SLI).
Hedge fund activity in SL Industries, Inc. (NYSEAMEX:SLI)
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, unchanged on the quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Steel Partners, managed by Warren Lichtenstein, holds the most valuable position in SL Industries, Inc. (NYSEAMEX:SLI). Steel Partners has a $33.8 million position in the stock, comprising 5.4% of its 13F portfolio. The second largest stake is held by GAMCO Investors, led by Mario Gabelli, holding a $10.5 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish comprise Jim Simons’s Renaissance Technologies, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors and Chuck Royce’s Royce & Associates.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PDT Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Algert Coldiron Investors).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as SL Industries, Inc. (NYSEAMEX:SLI) but similarly valued. We will take a look at Violin Memory Inc (NYSE:VMEM), Collectors Universe, Inc. (NASDAQ:CLCT), Dixie Group Inc (NASDAQ:DXYN), and Unilife Corp (NASDAQ:UNIS). This group of stocks’ market valuations are closest to SLI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VMEM | 7 | 8724 | -4 |
| CLCT | 5 | 15199 | 1 |
| DXYN | 5 | 16911 | -1 |
| UNIS | 4 | 3188 | -4 |
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $11 million, significantly lower than $47 million in SLI’s case. Violin Memory Inc (NYSE:VMEM) is the most popular stock in this table, while Unilife Corp (NASDAQ:UNIS) is the least popular one with only 4 bullish hedge fund positions. SL Industries, Inc. (NYSEAMEX:SLI) 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. In this regard VMEM might be a better candidate to take a closer look at.
