Small Companies, Big Declines: Why These Stocks Tumbled Today

The markets can’t seem to catch a break in 2016; on Wednesday, all major U.S stock indexes continued to decline. Among the stocks driving the drops were FXCM Inc (NYSE:FXCM), Energous Corp (NASDAQ:WATT), MeetMe Inc (NASDAQ:MEET) and Halozyme Therapeutics, Inc. (NASDAQ:HALO), all of which were down by double digits in the afternoon hours. Let’s take a look into the reasons behind these tumbles, as well as into how the hedge funds in our database feel about these companies.

Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spin offs were among the bright spots in hedge funds’ portfolios (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.

Back to the stocks that interest us today, there’s FXCM Inc (NYSE:FXCM), which is down by roughly 19% this afternoon after the company released disappointing monthly trading metrics. The micro-cap brokerage services company said its December retail customer trading volume reached $323 billion. While this figure implied an 8% month-over-month increase in trading volume, it also represented a 9% year-over-year decline. Moreover, fourth-quarter retail customer trading of $956 billion represented a 2% quarter-over-quarter fall, and a 16% year-over-year tumble.

As with most micro-cap companies, FXCM Inc (NYSE:FXCM) does not count many hedge funds in our database as backers. Only 5 such funds disclosed long stakes in the company as of the end of the third quarter, down from eight following the prior one. Two FXCM bulls to highlight are Kenneth Tropin’s Graham Capital Management and Israel Englander’s Millennium Management, which own roughly $3 million and $2 million in stock as of September 30, respectively.

Next up, we’ve got Energous Corp (NASDAQ:WATT), another micro-cap that is down by double digits (about 16%) today, seemingly on no particular news. Investors should notice, however, that the stock has been falling consistently since the beginning of the year, having lost more than 33% year-to-date.

Energous Corp (NASDAQ:WATT) is not particularly popular among institutional investors that we track. In fact, none of the funds in our database declared being long the stock as of the end of the third quarter of 2015. The largest institutional investor of record was L.A-based Doheny Asset Management, L.L.C., with 868,025 shares, or almost $6 million in stock.

On the next page we will look into the events driving the declines in MeetMe Inc (NASDAQ:MEET) and Halozyme Therapeutics, Inc. (NASDAQ:HALO).

MeetMe Inc (NASDAQ:MEET), yet another micro-cap, is down by about 17.8% this afternoon. The fall was probably triggered by the reported sale of about 210,000 shares of the company by Director John Abbott, at prices between $4.00 and $4.12 per share.

Same as in the cases cited above, it seems like MeetMe Inc (NASDAQ:MEET) is not very well-liked in the hedge fund world (at least among those that we care about). Over the third quarter of 2015, the number of funds long the stock fell by more than 42% to four. Interestingly, these four firms did own more than 14% of the company’s total shares. In fact, Joseph A. Jolson’s Harvest Capital Strategies alone holds 4.6 million shares of the company, or more than 10% of its outstanding stock.

Finally, there’s Halozyme Therapeutics, Inc. (NASDAQ:HALO), the only small-cap in this list, which has lost about 15% in Wednesday trading. The stock has been plummeting consistently this year, having lost almost 40% in 2016, losing much of the ground gained (76%) in 2015. On top of the overall negative biotech sector sentiment, a few other pieces of news might also be responsible for some of the losses. Among these, we can count the entry into a $150 million non-dilutive royalty-backed credit agreement and the release of a disappointing business update at JPMorgan’s 34th Annual Healthcare Conference on Monday.

But, unlike the other companies in this list, hedge funds were becoming increasingly bullish on Halozyme Therapeutics, Inc. (NASDAQ:HALO) during 2015. Over the third quarter, hedge fund interest (among the funds in our system) rose by 20%. As of September 30, 24 funds in our database held long stakes in the company; Iridian Asset Management owning the largest. The fund, managed by David Cohen and Harold Levy, declared ownership of 8.18 million shares worth about $109 million as of the end of that quarter.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned in this article.