Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is IDEX Corporation (NYSE:IEX) going to take off soon? Investors who are in the know are in an optimistic mood. The number of bullish hedge fund bets went up by 5 in recent months. Our calculations also showed that IEX isn’t among the 30 most popular stocks among hedge funds. IEX was in 23 hedge funds’ portfolios at the end of the third quarter of 2018. There were 18 hedge funds in our database with IEX holdings at the end of the previous quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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 gander at the latest hedge fund action encompassing IDEX Corporation (NYSE:IEX).
How are hedge funds trading IDEX Corporation (NYSE:IEX)?
At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in IEX over the last 13 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in IDEX Corporation (NYSE:IEX), which was worth $161.8 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $69.8 million worth of shares. Moreover, Millennium Management, ThornTree Capital Partners, and Royce & Associates were also bullish on IDEX Corporation (NYSE:IEX), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, some big names have jumped into IDEX Corporation (NYSE:IEX) headfirst. ThornTree Capital Partners, managed by Mark Moore, initiated the most outsized position in IDEX Corporation (NYSE:IEX). ThornTree Capital Partners had $24.8 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $4.2 million investment in the stock during the quarter. The following funds were also among the new IEX investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Matthew Tewksbury’s Stevens Capital Management, and Richard Driehaus’s Driehaus Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as IDEX Corporation (NYSE:IEX) but similarly valued. We will take a look at Braskem SA (NYSE:BAK), Martin Marietta Materials, Inc. (NYSE:MLM), Mid America Apartment Communities Inc (NYSE:MAA), and Live Nation Entertainment, Inc. (NYSE:LYV). All of these stocks’ market caps resemble IEX’s market cap.
|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 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $792 million. That figure was $358 million in IEX’s case. Live Nation Entertainment, Inc. (NYSE:LYV) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 13 bullish hedge fund positions. IDEX Corporation (NYSE:IEX) 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. In this regard LYV might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.