Is Cowen Inc. (COWN) Going To Burn These Hedge Funds ?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Cowen Inc. (NASDAQ:COWN) makes for a good investment right now.

Hedge fund interest in Cowen Inc. (NASDAQ:COWN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare COWN to other stocks including Hawkins, Inc. (NASDAQ:HWKN), Lannett Company, Inc. (NYSE:LCI), and Powell Industries, Inc. (NASDAQ:POWL) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
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’ 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 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 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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Managemnet

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. We’re going to check out the latest hedge fund action encompassing Cowen Inc. (NASDAQ:COWN).

Hedge fund activity in Cowen Inc. (NASDAQ:COWN)

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in COWN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Arbiter Partners Capital Management, managed by Paul J. Isaac, holds the most valuable position in Cowen Inc. (NASDAQ:COWN). Arbiter Partners Capital Management has a $25.6 million position in the stock, comprising 4.7% of its 13F portfolio. On Arbiter Partners Capital Management’s heels is D E Shaw, led by David E. Shaw, holding a $13.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of John W. Rogers’s Ariel Investments, Dmitry Balyasny’s Balyasny Asset Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Arbiter Partners Capital Management allocated the biggest weight to Cowen Inc. (NASDAQ:COWN), around 4.66% of its 13F portfolio. Mendon Capital Advisors is also relatively very bullish on the stock, earmarking 0.49 percent of its 13F equity portfolio to COWN.

Since Cowen Inc. (NASDAQ:COWN) has witnessed a decline in interest from the smart money, it’s safe to say that there exists a select few funds that decided to sell off their full holdings in the third quarter. At the top of the heap, Brian Gaines’s Springhouse Capital Management sold off the largest stake of the 750 funds monitored by Insider Monkey, worth close to $2.5 million in stock. J. Daniel Plants’s fund, Voce Capital, also dropped its stock, about $2.3 million worth. These bearish behaviors are important to note, as total 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 Cowen Inc. (NASDAQ:COWN) but similarly valued. These stocks are Hawkins, Inc. (NASDAQ:HWKN), Lannett Company, Inc. (NYSE:LCI), Powell Industries, Inc. (NASDAQ:POWL), and Turning Point Brands, Inc. (NYSE:TPB). This group of stocks’ market valuations resemble COWN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HWKN 8 11461 1
LCI 14 83065 2
POWL 16 48089 5
TPB 17 39440 3
Average 13.75 45514 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $88 million in COWN’s case. Turning Point Brands, Inc. (NYSE:TPB) is the most popular stock in this table. On the other hand Hawkins, Inc. (NASDAQ:HWKN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Cowen Inc. (NASDAQ:COWN) 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. Unfortunately COWN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on COWN were disappointed as the stock returned -0.5% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

Disclosure: None. This article was originally published at Insider Monkey.