Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: XO Group Inc (NYSE:XOXO).
XO Group Inc (NYSE:XOXO) investors should be aware of an increase in support from the world’s most elite money managers recently. XOXO was in 17 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with XOXO positions at the end of the previous quarter. Our calculations also showed that XOXO isn’t among the 30 most popular stocks among hedge funds.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a peek at the fresh hedge fund action encompassing XO Group Inc (NYSE:XOXO).
Hedge fund activity in XO Group Inc (NYSE:XOXO)
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 42% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in XOXO heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of XO Group Inc (NYSE:XOXO), with a stake worth $59.2 million reported as of the end of September. Trailing Renaissance Technologies was Water Island Capital, which amassed a stake valued at $16.4 million. D E Shaw, AQR Capital Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, specific money managers have been driving this bullishness. Water Island Capital, managed by John Orrico, initiated the biggest position in XO Group Inc (NYSE:XOXO). Water Island Capital had $16.4 million invested in the company at the end of the quarter. Mario Gabelli’s GAMCO Investors also initiated a $2.3 million position during the quarter. The following funds were also among the new XOXO investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Matthew Tewksbury’s Stevens Capital Management, and Joel Greenblatt’s Gotham Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as XO Group Inc (NYSE:XOXO) but similarly valued. We will take a look at Goldman Sachs BDC, Inc. (NYSE:GSBD), Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), Forestar Group Inc. (NYSE:FOR), and Solaris Oilfield Infrastructure, Inc. (NYSE:SOI). This group of stocks’ market caps are closest to XOXO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $141 million in XOXO’s case. Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) is the most popular stock in this table. On the other hand Goldman Sachs BDC, Inc. (NYSE:GSBD) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks XO Group Inc (NYSE:XOXO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.