Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Exela Technologies, Inc. (NASDAQ:XELA) was in 10 hedge funds’ portfolios at the end of March. XELA investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 13 hedge funds in our database with XELA holdings at the end of the previous quarter. Our calculations also showed that XELA 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 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.
We’re going to take a peek at the latest hedge fund action encompassing Exela Technologies, Inc. (NASDAQ:XELA).
Hedge fund activity in Exela Technologies, Inc. (NASDAQ:XELA)
Heading into the second quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in XELA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, holds the number one position in Exela Technologies, Inc. (NASDAQ:XELA). Nantahala Capital Management has a $28.1 million position in the stock, comprising 0.9% of its 13F portfolio. The second largest stake is held by Greenlight Capital, led by David Einhorn, holding a $26.8 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Jeffrey Gates’s Gates Capital Management, Curtis Schenker and Craig Effron’s Scoggin and Marc Lasry’s Avenue Capital.
Since Exela Technologies, Inc. (NASDAQ:XELA) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of funds that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Jody LaNasa’s Serengeti Asset Management sold off the largest position of all the hedgies tracked by Insider Monkey, worth an estimated $1.4 million in stock. Jim Simons’s fund, Renaissance Technologies, also said goodbye to its stock, about $0.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Exela Technologies, Inc. (NASDAQ:XELA) but similarly valued. These stocks are American Public Education, Inc. (NASDAQ:APEI), International Seaways, Inc. (NYSE:INSW), New Gold Inc. (NYSEAMEX:NGD), and Star Gas Partners, L.P. (NYSE:SGU). This group of stocks’ market values resemble XELA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APEI | 15 | 76344 | -1 |
| INSW | 11 | 160250 | 3 |
| NGD | 13 | 47671 | -2 |
| SGU | 8 | 99694 | 0 |
| Average | 11.75 | 95990 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $85 million in XELA’s case. American Public Education, Inc. (NASDAQ:APEI) is the most popular stock in this table. On the other hand Star Gas Partners, L.P. (NYSE:SGU) is the least popular one with only 8 bullish hedge fund positions. Exela Technologies, Inc. (NASDAQ:XELA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately XELA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); XELA investors were disappointed as the stock returned -40.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
