Were Hedge Funds Right About Souring On Heartland Express, Inc. (HTLD)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Heartland Express, Inc. (NASDAQ:HTLD) and determine whether the smart money was really smart about this stock.

Heartland Express, Inc. (NASDAQ:HTLD) has experienced a decrease in activity from the world’s largest hedge funds in recent months. HTLD was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 14 hedge funds in our database with HTLD holdings at the end of the previous quarter. Our calculations also showed that HTLD 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.

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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 go over the recent hedge fund action regarding Heartland Express, Inc. (NASDAQ:HTLD).

What have hedge funds been doing with Heartland Express, Inc. (NASDAQ:HTLD)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in HTLD a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Heartland Express, Inc. (NASDAQ:HTLD), which was worth $12.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $5.2 million worth of shares. Scopus Asset Management, D E Shaw, and Fisher Asset 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 Scopus Asset Management allocated the biggest weight to Heartland Express, Inc. (NASDAQ:HTLD), around 0.3% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to HTLD.

Since Heartland Express, Inc. (NASDAQ:HTLD) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there exists a select few money managers who were dropping their full holdings by the end of the first quarter. Interestingly, Noam Gottesman’s GLG Partners dropped the largest position of the 750 funds monitored by Insider Monkey, comprising about $1.9 million in stock. Brandon Haley’s fund, Holocene Advisors, also sold off its stock, about $0.9 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Heartland Express, Inc. (NASDAQ:HTLD). These stocks are Hailiang Education Group Inc. (NASDAQ:HLG), FS KKR Capital Corp. (NASDAQ:FSK), Cantel Medical Corp. (NYSE:CMD), and Guangshen Railway Co. Ltd (NYSE:GSH). All of these stocks’ market caps are closest to HTLD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $28 million in HTLD’s case. FS KKR Capital Corp. (NASDAQ:FSK) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 2 bullish hedge fund positions. Heartland Express, Inc. (NASDAQ:HTLD) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately HTLD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HTLD were disappointed as the stock returned 12.2% 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.