“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Hawkins, Inc. (NASDAQ:HWKN) and see how it was affected.
Hedge fund interest in Hawkins, Inc. (NASDAQ:HWKN) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as New Gold Inc. (NYSEAMEX:NGD), Overstock.com, Inc. (NASDAQ:OSTK), and CURO Group Holdings Corp. (NYSE:CURO) to gather more data points.
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 32 percentage points since May 2014 through March 12, 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.
Let’s take a look at the recent hedge fund action encompassing Hawkins, Inc. (NASDAQ:HWKN).
What have hedge funds been doing with Hawkins, Inc. (NASDAQ:HWKN)?
At Q4’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HWKN over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in Hawkins, Inc. (NASDAQ:HWKN), which was worth $3.5 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $1.6 million worth of shares. Moreover, D E Shaw, Millennium Management, and Two Sigma Advisors were also bullish on Hawkins, Inc. (NASDAQ:HWKN), allocating a large percentage of their portfolios to this stock.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: AQR 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 Ellington).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Hawkins, Inc. (NASDAQ:HWKN) but similarly valued. We will take a look at New Gold Inc. (NYSEAMEX:NGD), Overstock.com, Inc. (NASDAQ:OSTK), CURO Group Holdings Corp. (NYSE:CURO), and TORM plc (NASDAQ:TRMD). This group of stocks’ market valuations are similar to HWKN’s market valuation.
|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 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $8 million in HWKN’s case. New Gold Inc. (NYSEAMEX:NGD) is the most popular stock in this table. On the other hand TORM plc (NASDAQ:TRMD) is the least popular one with only 3 bullish hedge fund positions. Hawkins, Inc. (NASDAQ:HWKN) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately HWKN wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); HWKN investors were disappointed as the stock returned -6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.