Turtle Beach Corp (HEAR): Are Hedge Funds Right About This Stock?

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 30 stock picks easily bested the broader market, at 6.7% compared to 2.6%, despite there being a few duds in there like Facebook (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Turtle Beach Corp (NASDAQ:HEAR) has experienced an increase in hedge fund interest lately. HEAR was in 13 hedge funds’ portfolios at the end of the third quarter of 2018. There were 7 hedge funds in our database with HEAR positions at the end of the previous quarter. Our calculations also showed that HEAR isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

Millennium Management, Catapult Capital Management

Let’s view the fresh hedge fund action surrounding Turtle Beach Corp (NASDAQ:HEAR).

What does the smart money think about Turtle Beach Corp (NASDAQ:HEAR)?

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 86% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HEAR over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).


The largest stake in Turtle Beach Corp (NASDAQ:HEAR) was held by Manatuck Hill Partners, which reported holding $7.7 million worth of stock at the end of September. It was followed by Harvest Capital Strategies with a $7.7 million position. Other investors bullish on the company included Newtyn Management, Millennium Management, and Two Sigma Advisors.

Now, some big names were leading the bulls’ herd. Harvest Capital Strategies, managed by Joseph A. Jolson, established the largest position in Turtle Beach Corp (NASDAQ:HEAR). Harvest Capital Strategies had $7.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $3.6 million position during the quarter. The other funds with brand new HEAR positions are David Fiszel’s Honeycomb Asset Management, Leon Shaulov’s Maplelane Capital, and Joel Greenblatt’s Gotham Asset Management.

Let’s now review hedge fund activity in other stocks similar to Turtle Beach Corp (NASDAQ:HEAR). These stocks are BG Staffing Inc (NYSE:BGSF), Bridgepoint Education Inc (NYSE:BPI), HC2 Holdings Inc (NYSE:HCHC), and PICO Holdings Inc (NASDAQ:PICO). This group of stocks’ market caps resemble HEAR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BGSF 7 9664 3
BPI 17 74384 1
HCHC 12 13639 0
PICO 10 33626 0
Average 11.5 32828 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $46 million in HEAR’s case. Bridgepoint Education Inc (NYSE:BPI) is the most popular stock in this table. On the other hand BG Staffing Inc (NYSE:BGSF) is the least popular one with only 7 bullish hedge fund positions. Turtle Beach Corp (NASDAQ:HEAR) 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 BPI might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.