Were Hedge Funds Right About Ditching Heidrick & Struggles International (HSII)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Heidrick & Struggles International, Inc. (NASDAQ:HSII) and determine whether hedge funds skillfully traded this stock.

Heidrick & Struggles International, Inc. (NASDAQ:HSII) was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. HSII investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. There were 15 hedge funds in our database with HSII holdings at the end of the previous quarter. Our calculations also showed that HSII isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are plenty of metrics shareholders use to size up their stock investments. A pair of the less known metrics are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the best hedge fund managers can beat the broader indices by a superb amount (see the details here).

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 biggest gold mining companies to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the recent hedge fund action encompassing Heidrick & Struggles International, Inc. (NASDAQ:HSII).

What have hedge funds been doing with Heidrick & Struggles International (NASDAQ:HSII)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HSII over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the biggest position in Heidrick & Struggles International, Inc. (NASDAQ:HSII). Royce & Associates has a $29.8 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Renaissance Technologies, with a $28.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions comprise Christopher Shackelton and Adam Gray’s Coliseum Capital, Cliff Asness’s AQR Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Coliseum Capital allocated the biggest weight to Heidrick & Struggles International, Inc. (NASDAQ:HSII), around 2.25% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.41 percent of its 13F equity portfolio to HSII.

Seeing as Heidrick & Struggles International, Inc. (NASDAQ:HSII) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds who were dropping their positions entirely heading into Q4. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, comprising close to $1.2 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund said goodbye to about $0.9 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Heidrick & Struggles International, Inc. (NASDAQ:HSII) but similarly valued. These stocks are Denny’s Corporation (NASDAQ:DENN), Bluegreen Vacations Corporation (NYSE:BXG), QCR Holdings, Inc. (NASDAQ:QCRH), and Yintech Investment Holdings Limited (NASDAQ:YIN). All of these stocks’ market caps are similar to HSII’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $84 million in HSII’s case. Denny’s Corporation (NASDAQ:DENN) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 1 bullish hedge fund positions. Heidrick & Struggles International, Inc. (NASDAQ:HSII) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately HSII wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HSII were disappointed as the stock returned -5.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.