It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Overstock.com, Inc. (NASDAQ:OSTK).
Hedge fund interest in Overstock.com, Inc. (NASDAQ:OSTK) 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 Myers Industries, Inc. (NYSE:MYE), Axcelis Technologies Inc (NASDAQ:ACLS), and Fly Leasing Ltd(ADR) (NYSE:FLY) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Keeping this in mind, we’re going to go over the recent action encompassing Overstock.com, Inc. (NASDAQ:OSTK).
Hedge fund activity in Overstock.com, Inc. (NASDAQ:OSTK)
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OSTK over the last 5 quarters. So, let’s check 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, Fairfax Financial Holdings, led by Prem Watsa, holds the most valuable position in Overstock.com, Inc. (NASDAQ:OSTK). Fairfax Financial Holdings has a $48.8 million position in the stock, comprising 4.4% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies , one of the largest hedge funds in the world, which holds a $12.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish comprise Francis Chou’s Chou Associates Management, D. E. Shaw’s D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. 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: Citadel Investment Group. 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 Citadel Investment Group).
Let’s go over hedge fund activity in other stocks similar to Overstock.com, Inc. (NASDAQ:OSTK). We will take a look at Myers Industries, Inc. (NYSE:MYE), Axcelis Technologies Inc (NASDAQ:ACLS), Fly Leasing Ltd(ADR) (NYSE:FLY), and Audentes Therapeutics Inc (NASDAQ:BOLD). This group of stocks’ market values match OSTK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MYE | 9 | 68835 | 0 |
| ACLS | 10 | 57942 | -2 |
| FLY | 8 | 41338 | -1 |
| BOLD | 13 | 166773 | 13 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $84 million in OSTK’s case. Audentes Therapeutics Inc (NASDAQ:BOLD) is the most popular stock in this table. On the other hand Fly Leasing Ltd(ADR) (NYSE:FLY) is the least popular one with only 8 bullish hedge fund positions. Overstock.com, Inc. (NASDAQ:OSTK) 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 BOLD might be a better candidate to consider taking a long position in.
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Disclosure: None
