Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Forward Air Corporation (NASDAQ:FWRD) worth your attention right now? The best stock pickers are betting on the stock. The number of bullish hedge fund bets rose by 2 in recent months. Our calculations also showed that FWRD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FWRD was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. There were 18 hedge funds in our database with FWRD positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the key hedge fund action surrounding Forward Air Corporation (NASDAQ:FWRD).
How are hedge funds trading Forward Air Corporation (NASDAQ:FWRD)?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FWRD over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Forward Air Corporation (NASDAQ:FWRD) was held by Royce & Associates, which reported holding $53.9 million worth of stock at the end of September. It was followed by Scopus Asset Management with a $32.1 million position. Other investors bullish on the company included Arrowstreet Capital, GLG Partners, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Scopus Asset Management allocated the biggest weight to Forward Air Corporation (NASDAQ:FWRD), around 1.05% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.5 percent of its 13F equity portfolio to FWRD.
As one would reasonably expect, key money managers were leading the bulls’ herd. Scopus Asset Management, managed by Alexander Mitchell, established the most outsized position in Forward Air Corporation (NASDAQ:FWRD). Scopus Asset Management had $32.1 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $1.4 million investment in the stock during the quarter. The other funds with brand new FWRD positions are David Harding’s Winton Capital Management, Donald Sussman’s Paloma Partners, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Forward Air Corporation (NASDAQ:FWRD) but similarly valued. We will take a look at Goosehead Insurance, Inc. (NASDAQ:GSHD), Avanos Medical, Inc. (NYSE:AVNS), Yext, Inc. (NYSE:YEXT), and Altra Industrial Motion Corp. (NASDAQ:AIMC). This group of stocks’ market values resemble FWRD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GSHD | 8 | 35500 | 1 |
| AVNS | 12 | 69048 | 1 |
| YEXT | 13 | 98841 | -8 |
| AIMC | 14 | 218302 | 0 |
| Average | 11.75 | 105423 | -1.5 |
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 $105 million. That figure was $133 million in FWRD’s case. Altra Industrial Motion Corp. (NASDAQ:AIMC) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Forward Air Corporation (NASDAQ:FWRD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on FWRD, though not to the same extent, as the stock returned 10.2% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
