Were Hedge Funds Right About Deserting Inseego Corp. (INSG)?

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Inseego Corp. (NASDAQ:INSG).

Inseego Corp. (NASDAQ:INSG) shareholders have witnessed a decrease in hedge fund interest lately. Our calculations also showed that INSG isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Carlo Cannell

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s take a look at the new hedge fund action encompassing Inseego Corp. (NASDAQ:INSG).

What does smart money think about Inseego Corp. (NASDAQ:INSG)?

At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from the previous quarter. On the other hand, there were a total of 2 hedge funds with a bullish position in INSG a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with INSG Positions

The largest stake in Inseego Corp. (NASDAQ:INSG) was held by Renaissance Technologies, which reported holding $9.2 million worth of stock at the end of March. It was followed by Cannell Capital with a $6.8 million position. Other investors bullish on the company included Arrowstreet Capital, OZ Management, and Springbok Capital.

Judging by the fact that Inseego Corp. (NASDAQ:INSG) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few hedgies who sold off their full holdings in the second quarter. It’s worth mentioning that Israel Englander’s Millennium Management cut the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $2.8 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund cut about $2.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 7 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Inseego Corp. (NASDAQ:INSG). We will take a look at MMTec, Inc. (NASDAQ:MTC), Option Care Health, Inc. (NASDAQ:BIOS), CalAmp Corp. (NASDAQ:CAMP), and Gogo Inc (NASDAQ:GOGO). This group of stocks’ market valuations are similar to INSG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTC 1 10 1
BIOS 15 65590 -1
CAMP 16 99878 1
GOGO 15 65503 3
Average 11.75 57745 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $22 million in INSG’s case. CalAmp Corp. (NASDAQ:CAMP) is the most popular stock in this table. On the other hand MMTec, Inc. (NASDAQ:MTC) is the least popular one with only 1 bullish hedge fund positions. Inseego Corp. (NASDAQ:INSG) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately INSG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); INSG investors were disappointed as the stock returned 0.2% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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