Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Houghton Mifflin Harcourt Co (NASDAQ:HMHC).
Houghton Mifflin Harcourt Co (NASDAQ:HMHC) was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. HMHC investors should be aware of a decrease in hedge fund sentiment of late. There were 14 hedge funds in our database with HMHC positions at the end of the previous quarter. Our calculations also showed that HMHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the recent hedge fund action encompassing Houghton Mifflin Harcourt Co (NASDAQ:HMHC).
How have hedgies been trading Houghton Mifflin Harcourt Co (NASDAQ:HMHC)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in HMHC 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.
Among these funds, Anchorage Advisors held the most valuable stake in Houghton Mifflin Harcourt Co (NASDAQ:HMHC), which was worth $103.8 million at the end of the third quarter. On the second spot was Water Street Capital which amassed $36.7 million worth of shares. Freshford Capital Management, Silver Point Capital, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Anchorage Advisors allocated the biggest weight to Houghton Mifflin Harcourt Co (NASDAQ:HMHC), around 5.95% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, setting aside 3.92 percent of its 13F equity portfolio to HMHC.
Seeing as Houghton Mifflin Harcourt Co (NASDAQ:HMHC) has faced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers that slashed their entire stakes last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $3.7 million in stock. Renaissance Technologies, also dumped its stock, about $2.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Houghton Mifflin Harcourt Co (NASDAQ:HMHC). We will take a look at Global Partners LP (NYSE:GLP), Yirendai Ltd. (NYSE:YRD), Aegion Corp – Class A (NASDAQ:AEGN), and Silvercorp Metals Inc. (NYSE:SVM). This group of stocks’ market values match HMHC’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 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $191 million in HMHC’s case. Aegion Corp – Class A (NASDAQ:AEGN) is the most popular stock in this table. On the other hand Global Partners LP (NYSE:GLP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Houghton Mifflin Harcourt Co (NASDAQ:HMHC) 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. Hedge funds were also right about betting on HMHC, though not to the same extent, as the stock returned 10.1% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.