Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.
Hedge fund interest in Fenix Parts Inc (NASDAQ:FENX) 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 Pieris Pharmaceuticals Inc (NASDAQ:PIRS), Rocky Brands, Inc. (NASDAQ:RCKY), and Arotech Corporation (NASDAQ:ARTX) to gather more data points.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
Keeping this in mind, let’s take a glance at the new action regarding Fenix Parts Inc (NASDAQ:FENX).
What does the smart money think about Fenix Parts Inc (NASDAQ:FENX)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a unchanged from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FENX over the last 5 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Ascend Capital, led by Malcolm Fairbairn, holds the biggest position in Fenix Parts Inc (NASDAQ:FENX). According to regulatory filings, the fund has a $7.9 million position in the stock, comprising 0.5% of its 13F portfolio. On Ascend Capital’s heels is Chuck Royce of Royce & Associates, with a $6.2 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish encompass Brandon Osten’s Venator Capital Management, Anand Parekh’s Alyeska Investment Group and Millennium Management, one of the 10 largest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: LMR Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Renaissance Technologies).
Let’s now review hedge fund activity in other stocks similar to Fenix Parts Inc (NASDAQ:FENX). These stocks are Pieris Pharmaceuticals Inc (NASDAQ:PIRS), Rocky Brands, Inc. (NASDAQ:RCKY), Arotech Corporation (NASDAQ:ARTX), and North American Energy Partners Inc.(USA) (NYSE:NOA). This group of stocks’ market values resemble FENX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $22 million in FENX’s case. Pieris Pharmaceuticals Inc (NASDAQ:PIRS) is the most popular stock in this table. On the other hand Arotech Corporation (NASDAQ:ARTX) is the least popular one with only 3 bullish hedge fund positions. Fenix Parts Inc (NASDAQ:FENX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PIRS might be a better candidate to consider taking a long position in.