It was a rough third quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during the quarter. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 14 percentage points between June 25 and October 30, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Profire Energy, Inc. (NASDAQ:PFIE) during the quarter below.
Hedge fund interest in Profire Energy, Inc. (NASDAQ:PFIE) shares was flat during the last quarter. This is usually a negative indicator. The stock was still held in the portfolios of 5 hedgies in our database by the end of the quarter, during which shares of PFIE fell by about 14%. 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 LeapFrog Enterprises, Inc. (NYSE:LF), Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), and SFX Entertainment Inc (NASDAQ:SFXE) to gather more data points.
If you’d ask most traders, hedge funds are perceived as unimportant, outdated financial tools of the past. While there are more than 8,000 funds trading today, we hone in on the leaders of this group, approximately 700 funds. It is estimated that this group of investors have their hands on the lion’s share of the hedge fund industry’s total capital, and by keeping track of their best equity investments, Insider Monkey has spotted several investment strategies that have historically surpassed the market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points annually for a decade in their back tests.
Keeping this in mind, let’s view the latest action surrounding Profire Energy, Inc. (NASDAQ:PFIE).
How are hedge funds trading Profire Energy, Inc. (NASDAQ:PFIE)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from one quarter earlier. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or had already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in Profire Energy, Inc. (NASDAQ:PFIE). Royce & Associates has a $1.8 million position in the stock, comprising less than 0.1% of its 13F portfolio. The second-largest stake is held by Intrepid Capital Management, managed by Mark Travis, which holds a $0.5 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions consist of Andy Redleaf’s Whitebox Advisors, Israel Englander’s Millennium Management, and Ken Griffin’s Citadel Investment Group.
We view hedge fund activity in the stock as being 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 here, because only one of the 700+ hedge funds tracked by Insider Monkey identified the stock as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Profire Energy, Inc. (NASDAQ:PFIE) but similarly valued. These stocks are LeapFrog Enterprises, Inc. (NYSE:LF), Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), SFX Entertainment Inc (NASDAQ:SFXE), and Orion Energy Systems, Inc. (NASDAQ:OESX). All of these stocks’ market caps resemble PFIE’s market cap.
|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 9 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $3 million in PFIE’s case. LeapFrog Enterprises, Inc. (NYSE:LF) is the most popular stock in this table. On the other hand Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP) is the least popular one with only 4 bullish hedge fund positions. Profire Energy, Inc. (NASDAQ:PFIE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LF or SFXE might be better candidates to consider a long position in.