How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Spok Holdings Inc (NASDAQ:SPOK) and determine whether hedge funds had an edge regarding this stock.
Spok Holdings Inc (NASDAQ:SPOK) was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. SPOK has experienced an increase in support from the world’s most elite money managers lately. There were 12 hedge funds in our database with SPOK positions at the end of the previous quarter. Our calculations also showed that SPOK 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.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 9 largest lithium producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding Spok Holdings Inc (NASDAQ:SPOK).
How have hedgies been trading Spok Holdings Inc (NASDAQ:SPOK)?
Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPOK over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the most valuable position in Spok Holdings Inc (NASDAQ:SPOK). Renaissance Technologies has a $15.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $1.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism consist of Ali Motamed’s Invenomic Capital Management, Warren Lammert’s Granite Point Capital and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Invenomic Capital Management allocated the biggest weight to Spok Holdings Inc (NASDAQ:SPOK), around 1.07% of its 13F portfolio. Granite Point Capital is also relatively very bullish on the stock, setting aside 0.6 percent of its 13F equity portfolio to SPOK.
As one would reasonably expect, key hedge funds have jumped into Spok Holdings Inc (NASDAQ:SPOK) headfirst. Granite Point Capital, managed by Warren Lammert, initiated the most valuable position in Spok Holdings Inc (NASDAQ:SPOK). Granite Point Capital had $1.1 million invested in the company at the end of the quarter. Thomas Bailard’s Bailard Inc also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks similar to Spok Holdings Inc (NASDAQ:SPOK). We will take a look at Beazer Homes USA, Inc. (NYSE:BZH), IRSA Inversiones y Representaciones Sociedad Anonima (NYSE:IRS), Exagen Inc. (NASDAQ:XGN), and Overstock.com, Inc. (NASDAQ:OSTK). This group of stocks’ market valuations are similar to SPOK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BZH | 12 | 22450 | -2 |
| IRS | 6 | 13568 | 0 |
| XGN | 1 | 7 | -1 |
| OSTK | 6 | 12396 | 1 |
| Average | 6.25 | 12105 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $22 million in SPOK’s case. Beazer Homes USA, Inc. (NYSE:BZH) is the most popular stock in this table. On the other hand Exagen Inc. (NASDAQ:XGN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Spok Holdings Inc (NASDAQ:SPOK) 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 gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately SPOK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SPOK were disappointed as the stock returned -9.3% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
