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Hedge Funds Are Betting On Insteel Industries Inc (IIIN)

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtInsteel Industries Inc (NASDAQ:IIIN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Insteel Industries Inc (NASDAQ:IIIN) has experienced an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that IIIN 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.

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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. Keeping this in mind let’s go over the key hedge fund action surrounding Insteel Industries Inc (NASDAQ:IIIN).

Hedge fund activity in Insteel Industries Inc (NASDAQ:IIIN)

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 83% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in IIIN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is IIIN A Good Stock To Buy?

Among these funds, Royce & Associates held the most valuable stake in Insteel Industries Inc (NASDAQ:IIIN), which was worth $12.3 million at the end of the third quarter. On the second spot was SG Capital Management which amassed $2.7 million worth of shares. Two Sigma Advisors, AQR Capital Management, and D E Shaw 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 SG Capital Management allocated the biggest weight to Insteel Industries Inc (NASDAQ:IIIN), around 1.24% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, designating 0.34 percent of its 13F equity portfolio to IIIN.

As industrywide interest jumped, key hedge funds were breaking ground themselves. SG Capital Management, managed by Ken Grossman and Glen Schneider, assembled the most outsized position in Insteel Industries Inc (NASDAQ:IIIN). SG Capital Management had $2.7 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Tim Curro’s Value Holdings LP, Renaissance Technologies, and Ken Griffin’s Citadel Investment Group.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Insteel Industries Inc (NASDAQ:IIIN) but similarly valued. We will take a look at Jernigan Capital Inc (NYSE:JCAP), Nathan’s Famous, Inc. (NASDAQ:NATH), Oil-Dri Corporation of America (NYSE:ODC), and Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI). This group of stocks’ market valuations are similar to IIIN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JCAP 9 22597 -2
NATH 5 31054 0
ODC 4 30530 1
ACBI 14 37356 0
Average 8 30384 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $21 million in IIIN’s case. Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI) is the most popular stock in this table. On the other hand Oil-Dri Corporation of America (NYSE:ODC) is the least popular one with only 4 bullish hedge fund positions. Insteel Industries Inc (NASDAQ:IIIN) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on IIIN as the stock returned 44.2% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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