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Hedge Funds Are Warming Up To Conn’s, Inc. (CONN)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Conn’s, Inc. (NASDAQ:CONN).

Conn’s, Inc. (NASDAQ:CONN) investors should pay attention to an increase in hedge fund sentiment lately. Our calculations also showed that CONN 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.

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 S&P 500 ETFs by 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.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the key hedge fund action encompassing Conn’s, Inc. (NASDAQ:CONN).

What have hedge funds been doing with Conn’s, Inc. (NASDAQ:CONN)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CONN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Conn’s, Inc. (NASDAQ:CONN) was held by Royce & Associates, which reported holding $2.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $1.8 million position. Other investors bullish on the company included Millennium Management, Two Sigma Advisors, and Winton Capital Management. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Conn’s, Inc. (NASDAQ:CONN), around 0.05% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to CONN.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most outsized position in Conn’s, Inc. (NASDAQ:CONN). Two Sigma Advisors had $0.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $0.4 million investment in the stock during the quarter. The other funds with brand new CONN positions are Greg Eisner’s Engineers Gate Manager, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Conn’s, Inc. (NASDAQ:CONN) but similarly valued. These stocks are Information Services Group, Inc. (NASDAQ:III), Bel Fuse, Inc. (NASDAQ:BELFB), Avianca Holdings SA (NYSE:AVH), and Bankwell Financial Group, Inc. (NASDAQ:BWFG). This group of stocks’ market valuations match CONN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
III 7 21552 1
BELFB 7 11172 0
AVH 4 1570 1
BWFG 4 15637 -1
Average 5.5 12483 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $9 million in CONN’s case. Information Services Group, Inc. (NASDAQ:III) is the most popular stock in this table. On the other hand Avianca Holdings SA (NYSE:AVH) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Conn’s, Inc. (NASDAQ:CONN) is more popular among hedge funds. 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 returned 13.4% in 2020 through June 22nd but still managed to beat the market by 15.9 percentage points. Hedge funds were also right about betting on CONN as the stock returned 117% so far in Q2 (through June 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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