Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Stoneridge, Inc. (NYSE:SRI).
Stoneridge, Inc. (NYSE:SRI) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds’ portfolios at the end of September. 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 Connecticut Water Service, Inc. (NASDAQ:CTWS), MGP Ingredients Inc (NASDAQ:MGPI), and Trueblue Inc (NYSE:TBI) to gather more data points. Our calculations also showed that SRI 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’ 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.
Mario Gabelli of GAMCO Investors
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 check out the recent hedge fund action surrounding Stoneridge, Inc. (NYSE:SRI).
How have hedgies been trading Stoneridge, Inc. (NYSE:SRI)?
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in SRI a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the most valuable position in Stoneridge, Inc. (NYSE:SRI). Renaissance Technologies has a $16.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Chuck Royce of Royce & Associates, with a $16.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism comprise Gregg J. Powers’s Private Capital Management, Todd J. Kantor’s Encompass Capital Advisors and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to Stoneridge, Inc. (NYSE:SRI), around 2.48% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, designating 0.71 percent of its 13F equity portfolio to SRI.
Seeing as Stoneridge, Inc. (NYSE:SRI) has faced a decline in interest from hedge fund managers, it’s safe to say that there is a sect of hedge funds that slashed their full holdings heading into Q4. Interestingly, George McCabe’s Portolan Capital Management dropped the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $4.5 million in stock. Minhua Zhang’s fund, Weld Capital Management, also dropped its stock, about $1.1 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 – not necessarily in the same industry as Stoneridge, Inc. (NYSE:SRI) but similarly valued. These stocks are Connecticut Water Service, Inc. (NASDAQ:CTWS), MGP Ingredients Inc (NASDAQ:MGPI), Trueblue Inc (NYSE:TBI), and Interface, Inc. (NASDAQ:TILE). This group of stocks’ market values match SRI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTWS | 7 | 34657 | 2 |
| MGPI | 10 | 47259 | 3 |
| TBI | 14 | 73599 | -1 |
| TILE | 14 | 44528 | 2 |
| Average | 11.25 | 50011 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $81 million in SRI’s case. Trueblue Inc (NYSE:TBI) is the most popular stock in this table. On the other hand Connecticut Water Service, Inc. (NASDAQ:CTWS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Stoneridge, Inc. (NYSE:SRI) is more popular among hedge funds. 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 SRI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SRI were disappointed as the stock returned -2.7% 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.
