It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Smart Sand, Inc. (NASDAQ:SND).
Smart Sand, Inc. (NASDAQ:SND) investors should pay attention to an increase in hedge fund interest lately. SND was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with SND positions at the end of the previous quarter. Our calculations also showed that SND 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium 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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s take a peek at the fresh hedge fund action regarding Smart Sand, Inc. (NASDAQ:SND).
How are hedge funds trading Smart Sand, Inc. (NASDAQ:SND)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SND over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Sprott Asset Management was the largest shareholder of Smart Sand, Inc. (NASDAQ:SND), with a stake worth $2.1 million reported as of the end of September. Trailing Sprott Asset Management was Arrowstreet Capital, which amassed a stake valued at $1 million. Citadel Investment Group, Marshall Wace, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Smart Sand, Inc. (NASDAQ:SND), around 0.54% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to SND.
Now, specific money managers were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, assembled the most outsized position in Smart Sand, Inc. (NASDAQ:SND). Marshall Wace had $0.5 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $0.2 million position during the quarter. The only other fund with a new position in the stock is Roger Ibbotson’s Zebra Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Smart Sand, Inc. (NASDAQ:SND) but similarly valued. These stocks are Harvard Bioscience, Inc. (NASDAQ:HBIO), Aptose Biosciences Inc (NASDAQ:APTO), Limestone Bancorp, Inc. (NASDAQ:LMST), and Alcentra Capital Corp. (NASDAQ:ABDC). This group of stocks’ market caps are similar to SND’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HBIO | 13 | 26821 | 2 |
| APTO | 7 | 19612 | 1 |
| LMST | 1 | 4646 | 0 |
| ABDC | 3 | 2517 | 0 |
| Average | 6 | 13399 | 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 $13 million. That figure was $6 million in SND’s case. Harvard Bioscience, Inc. (NASDAQ:HBIO) is the most popular stock in this table. On the other hand Limestone Bancorp, Inc. (NASDAQ:LMST) is the least popular one with only 1 bullish hedge fund positions. Smart Sand, Inc. (NASDAQ:SND) 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 SND wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SND were disappointed as the stock returned -18% 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.
