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 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-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’ 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 Spok Holdings Inc (NASDAQ:SPOK).
Spok Holdings Inc (NASDAQ:SPOK) investors should be aware of a decrease in hedge fund interest of late. Our calculations also showed that SPOK isn’t among the 30 most popular stocks among hedge funds.
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.
Noam Gottesman, GLG Partners
We’re going to take a glance at the new hedge fund action surrounding Spok Holdings Inc (NASDAQ:SPOK).
Hedge fund activity in Spok Holdings Inc (NASDAQ:SPOK)
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the fourth quarter of 2018. On the other hand, there were a total of 12 hedge funds with a bullish position in SPOK a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Spok Holdings Inc (NASDAQ:SPOK), with a stake worth $20.9 million reported as of the end of March. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $8 million. Arrowstreet Capital, AQR Capital Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
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 none of the 700+ hedge funds tracked by Insider Monkey identified SPOK as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks similar to Spok Holdings Inc (NASDAQ:SPOK). These stocks are Calithera Biosciences Inc (NASDAQ:CALA), Xenon Pharmaceuticals Inc (NASDAQ:XENE), Affimed NV (NASDAQ:AFMD), and Panhandle Oil and Gas Inc. (NYSE:PHX). This group of stocks’ market valuations resemble SPOK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CALA | 7 | 31593 | -1 |
| XENE | 19 | 119649 | 1 |
| AFMD | 12 | 24969 | 0 |
| PHX | 3 | 37008 | 0 |
| Average | 10.25 | 53305 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $35 million in SPOK’s case. Xenon Pharmaceuticals Inc (NASDAQ:XENE) is the most popular stock in this table. On the other hand Panhandle Oil and Gas Inc. (NYSE:PHX) is the least popular one with only 3 bullish hedge fund positions. Spok Holdings Inc (NASDAQ:SPOK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on SPOK as the stock returned 11.5% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
