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 18.7% compared to 12.1%, 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.
Hedge fund interest in Mammoth Energy Services, Inc. (NASDAQ:TUSK) 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 NanoString Technologies Inc (NASDAQ:NSTG), DMC Global Inc. (NASDAQ:BOOM), and Party City Holdco Inc (NYSE:PRTY) to gather more data points.
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.
Let’s take a look at the latest hedge fund action regarding Mammoth Energy Services, Inc. (NASDAQ:TUSK).
Hedge fund activity in Mammoth Energy Services, Inc. (NASDAQ:TUSK)
Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in TUSK a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Wexford Capital held the most valuable stake in Mammoth Energy Services, Inc. (NASDAQ:TUSK), which was worth $366.1 million at the end of the first quarter. On the second spot was Royce & Associates which amassed $5.5 million worth of shares. Moreover, AQR Capital Management, Marshall Wace LLP, and GLG Partners were also bullish on Mammoth Energy Services, Inc. (NASDAQ:TUSK), allocating a large percentage of their portfolios to this stock.
Since Mammoth Energy Services, Inc. (NASDAQ:TUSK) has faced declining sentiment from the smart money, it’s easy to see that there exists a select few money managers that elected to cut their positions entirely last quarter. At the top of the heap, Israel Englander’s Millennium Management dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $2.5 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $0.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mammoth Energy Services, Inc. (NASDAQ:TUSK) but similarly valued. These stocks are NanoString Technologies Inc (NASDAQ:NSTG), DMC Global Inc. (NASDAQ:BOOM), Party City Holdco Inc (NYSE:PRTY), and Everi Holdings Inc (NYSE:EVRI). This group of stocks’ market valuations are similar to TUSK’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 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $389 million in TUSK’s case. Everi Holdings Inc (NYSE:EVRI) is the most popular stock in this table. On the other hand DMC Global Inc. (NASDAQ:BOOM) is the least popular one with only 14 bullish hedge fund positions. Mammoth Energy Services, Inc. (NASDAQ:TUSK) 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 TUSK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TUSK investors were disappointed as the stock returned -65.2% 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.