It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in InnerWorkings, Inc. (NASDAQ:INWK).
InnerWorkings, Inc. (NASDAQ:INWK) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of September. 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 Timberland Bancorp, Inc. (NASDAQ:TSBK), Panhandle Oil and Gas Inc. (NYSE:PHX), and L.B. Foster Company (NASDAQ:FSTR) to gather more data points. Our calculations also showed that INWK 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.
Ken Griffin of Citadel Investment Group
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. Let’s take a look at the latest hedge fund action surrounding InnerWorkings, Inc. (NASDAQ:INWK).
What does smart money think about InnerWorkings, Inc. (NASDAQ:INWK)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards INWK over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Glenn W. Welling’s Engaged Capital has the number one position in InnerWorkings, Inc. (NASDAQ:INWK), worth close to $11.4 million, amounting to 1.6% of its total 13F portfolio. The second largest stake is held by David Park of Headlands Capital, with a $10.6 million position; the fund has 7.4% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism comprise Thomas E. Claugus’s GMT Capital, David E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Headlands Capital allocated the biggest weight to InnerWorkings, Inc. (NASDAQ:INWK), around 7.42% of its 13F portfolio. Engaged Capital is also relatively very bullish on the stock, setting aside 1.55 percent of its 13F equity portfolio to INWK.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Weld Capital Management. 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 Winton Capital Management).
Let’s go over hedge fund activity in other stocks similar to InnerWorkings, Inc. (NASDAQ:INWK). We will take a look at Timberland Bancorp, Inc. (NASDAQ:TSBK), Panhandle Oil and Gas Inc. (NYSE:PHX), L.B. Foster Company (NASDAQ:FSTR), and Celsius Holdings, Inc. (NASDAQ:CELH). This group of stocks’ market caps are similar to INWK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSBK | 3 | 30150 | 0 |
| PHX | 3 | 34248 | -1 |
| FSTR | 11 | 52504 | -4 |
| CELH | 5 | 820 | 3 |
| Average | 5.5 | 29431 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $39 million in INWK’s case. L.B. Foster Company (NASDAQ:FSTR) is the most popular stock in this table. On the other hand Timberland Bancorp, Inc. (NASDAQ:TSBK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks InnerWorkings, Inc. (NASDAQ:INWK) 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 INWK, though not to the same extent, as the stock returned 6.3% 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.
