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Did Hedge Funds Drop The Ball On Spartan Motors Inc (SPAR) ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Spartan Motors Inc (NASDAQ:SPAR).

Spartan Motors Inc (NASDAQ:SPAR) was in 11 hedge funds’ portfolios at the end of June. SPAR investors should be aware of a decrease in enthusiasm from smart money lately. There were 15 hedge funds in our database with SPAR positions at the end of the previous quarter. Our calculations also showed that SPAR isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Chuck Royce

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the fresh hedge fund action encompassing Spartan Motors Inc (NASDAQ:SPAR).

What have hedge funds been doing with Spartan Motors Inc (NASDAQ:SPAR)?

Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SPAR over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

No of Hedge Funds with SPAR Positions

The largest stake in Spartan Motors Inc (NASDAQ:SPAR) was held by Royce & Associates, which reported holding $15.4 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $7.5 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and GAMCO Investors.

Because Spartan Motors Inc (NASDAQ:SPAR) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of fund managers who were dropping their entire stakes heading into Q3. It’s worth mentioning that Phil Frohlich’s Prescott Group Capital Management cut the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $2.7 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 4 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Spartan Motors Inc (NASDAQ:SPAR). These stocks are Lands’ End, Inc. (NASDAQ:LE), PDL BioPharma Inc. (NASDAQ:PDLI), Consolidated Communications Holdings Inc (NASDAQ:CNSL), and Agenus Inc (NASDAQ:AGEN). This group of stocks’ market values are similar to SPAR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LE 12 71897 -2
PDLI 13 66848 -5
CNSL 14 8843 3
AGEN 6 14030 -1
Average 11.25 40405 -1.25

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 $40 million. That figure was $44 million in SPAR’s case. Consolidated Communications Holdings Inc (NASDAQ:CNSL) is the most popular stock in this table. On the other hand Agenus Inc (NASDAQ:AGEN) is the least popular one with only 6 bullish hedge fund positions. Spartan Motors Inc (NASDAQ:SPAR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SPAR as the stock returned 25.2% during the same time frame and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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