It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. 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 Viad Corp (NYSE:VVI).
Viad Corp (NYSE:VVI) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of September. At the end of this article we will also compare VVI to other stocks including Amerisafe, Inc. (NASDAQ:AMSF), Autolus Therapeutics plc (NASDAQ:AUTL), and City Holding Company (NASDAQ:CHCO) to get a better sense of its popularity.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to view the latest hedge fund action encompassing Viad Corp (NYSE:VVI).
What have hedge funds been doing with Viad Corp (NYSE:VVI)?
Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, representing no change from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in VVI heading into this year. So, let’s see 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, Moab Capital Partners, managed by Michael M. Rothenberg, holds the number one position in Viad Corp (NYSE:VVI). Moab Capital Partners has a $83.2 million position in the stock, comprising 18.2% of its 13F portfolio. On Moab Capital Partners’s heels is Michael A. Price and Amos Meron of Empyrean Capital Partners, with a $46.3 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Thomas E. Claugus’s GMT Capital, and Mark Broach’s Manatuck Hill Partners.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Hudson Bay Capital Management).
Let’s now review hedge fund activity in other stocks similar to Viad Corp (NYSE:VVI). We will take a look at Amerisafe, Inc. (NASDAQ:AMSF), Autolus Therapeutics plc (NASDAQ:AUTL), City Holding Company (NASDAQ:CHCO), and Esperion Therapeutics, Inc. (NASDAQ:ESPR). This group of stocks’ market values are similar to VVI’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $186 million in VVI’s case. Esperion Therapeutics, Inc. (NASDAQ:ESPR) is the most popular stock in this table. On the other hand City Holding Company (NASDAQ:CHCO) is the least popular one with only 8 bullish hedge fund positions. Viad Corp (NYSE:VVI) 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. In this regard ESPR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.