Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Team, Inc. (NYSE:TISI).
Team, Inc. (NYSE:TISI) has seen an increase in support from the world’s most elite money managers recently. Our calculations also showed that TISI isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a peek at the key hedge fund action encompassing Team, Inc. (NYSE:TISI).
Hedge fund activity in Team, Inc. (NYSE:TISI)
At Q1’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TISI over the last 15 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Mario Gabelli’s GAMCO Investors has the largest position in Team, Inc. (NYSE:TISI), worth close to $28.2 million, amounting to 0.2% of its total 13F portfolio. On GAMCO Investors’s heels is Ariel Investments, led by John W. Rogers, holding a $25.3 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Chuck Royce’s Royce & Associates, Todd J. Kantor’s Encompass Capital Advisors and Peter Schliemann’s Rutabaga Capital Management.
As aggregate interest increased, key money managers were breaking ground themselves. Encompass Capital Advisors, managed by Todd J. Kantor, initiated the most valuable position in Team, Inc. (NYSE:TISI). Encompass Capital Advisors had $10.3 million invested in the company at the end of the quarter. Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are John A. Levin’s Levin Capital Strategies and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to Team, Inc. (NYSE:TISI). These stocks are Quanex Building Products Corporation (NYSE:NX), 111, Inc. (NASDAQ:YI), Montage Resources Corporation (NYSE:MR), and Boston Omaha Corporation (NASDAQ:BOMN). This group of stocks’ market caps match TISI’s market cap.
|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 9 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $95 million in TISI’s case. Quanex Building Products Corporation (NYSE:NX) is the most popular stock in this table. On the other hand 111, Inc. (NASDAQ:YI) is the least popular one with only 3 bullish hedge fund positions. Team, Inc. (NYSE:TISI) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TISI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TISI were disappointed as the stock returned -16.5% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.