Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that HCCI isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the recent hedge fund action regarding Heritage-Crystal Clean, Inc. (NASDAQ:HCCI).
How are hedge funds trading Heritage-Crystal Clean, Inc. (NASDAQ:HCCI)?
Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HCCI over the last 16 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Cove Street Capital, managed by Jeffrey Bronchick, holds the biggest position in Heritage-Crystal Clean, Inc. (NASDAQ:HCCI). Cove Street Capital has a $26.9 million position in the stock, comprising 3.5% of its 13F portfolio. The second largest stake is held by Royce & Associates, managed by Chuck Royce, which holds a $15.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism contain Renaissance Technologies, J. Carlo Cannell’s Cannell Capital and Cliff Asness’s AQR Capital Management.
Seeing as Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there were a few money managers that decided to sell off their positions entirely last quarter. Interestingly, Ken Griffin’s Citadel Investment Group dropped the biggest investment of the 750 funds watched by Insider Monkey, totaling an estimated $0.6 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $0.5 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 3 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Heritage-Crystal Clean, Inc. (NASDAQ:HCCI). We will take a look at Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX), BlackRock MuniVest Fund, Inc. (NYSE:MVF), Renewable Energy Group Inc (NASDAQ:REGI), and Century Aluminum Company (NASDAQ:CENX). This group of stocks’ market values are closest to HCCI’s market value.
|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 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $69 million in HCCI’s case. Renewable Energy Group Inc (NASDAQ:REGI) is the most popular stock in this table. On the other hand BlackRock MuniVest Fund, Inc. (NYSE:MVF) is the least popular one with only 1 bullish hedge fund positions. Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HCCI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HCCI investors were disappointed as the stock returned 0.7% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.