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.
Ituran Location and Control Ltd. (NASDAQ:ITRN) investors should be aware of a decrease in hedge fund interest in recent months. ITRN was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with ITRN positions at the end of the previous quarter. Our calculations also showed that ITRN 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.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the recent hedge fund action encompassing Ituran Location and Control Ltd. (NASDAQ:ITRN).
How have hedgies been trading Ituran Location and Control Ltd. (NASDAQ:ITRN)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in ITRN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ituran Location and Control Ltd. (NASDAQ:ITRN) was held by Renaissance Technologies, which reported holding $36.4 million worth of stock at the end of September. It was followed by Gobi Capital with a $36.1 million position. Other investors bullish on the company included Steamboat Capital Partners, Millennium Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Gobi Capital allocated the biggest weight to Ituran Location and Control Ltd. (NASDAQ:ITRN), around 5.5% of its 13F portfolio. Steamboat Capital Partners is also relatively very bullish on the stock, earmarking 2.32 percent of its 13F equity portfolio to ITRN.
Due to the fact that Ituran Location and Control Ltd. (NASDAQ:ITRN) has experienced a decline in interest from hedge fund managers, it’s easy to see that there is a sect of hedge funds who were dropping their positions entirely heading into Q4. At the top of the heap, Jeffrey Jacobowitz’s Simcoe Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising close to $12.3 million in stock. Richard Driehaus’s fund, Driehaus Capital, also cut its stock, about $0.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Ituran Location and Control Ltd. (NASDAQ:ITRN). We will take a look at International Money Express, Inc. (NASDAQ:IMXI), Heidrick & Struggles International, Inc. (NASDAQ:HSII), Flexion Therapeutics Inc (NASDAQ:FLXN), and MYR Group Inc (NASDAQ:MYRG). All of these stocks’ market caps resemble ITRN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMXI | 14 | 96639 | 2 |
| HSII | 14 | 97655 | 1 |
| FLXN | 15 | 137510 | 0 |
| MYRG | 14 | 24018 | 3 |
| Average | 14.25 | 88956 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $95 million in ITRN’s case. Flexion Therapeutics Inc (NASDAQ:FLXN) is the most popular stock in this table. On the other hand International Money Express, Inc. (NASDAQ:IMXI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Ituran Location and Control Ltd. (NASDAQ:ITRN) is even less popular than IMXI. Hedge funds dodged a bullet by taking a bearish stance towards ITRN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ITRN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ITRN investors were disappointed as the stock returned -3.2% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
