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Were Hedge Funds Right About Dumping Exela Technologies, Inc. (XELA) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Exela Technologies, Inc. (NASDAQ:XELA) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Exela Technologies, Inc. (NASDAQ:XELA) was in 13 hedge funds’ portfolios at the end of the fourth quarter of 2018. XELA has experienced a decrease in enthusiasm from smart money of late. There were 14 hedge funds in our database with XELA positions at the end of the previous quarter. Our calculations also showed that XELA 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 32 percentage points since May 2014 through March 12, 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.

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We’re going to go over the recent hedge fund action regarding Exela Technologies, Inc. (NASDAQ:XELA).

How are hedge funds trading Exela Technologies, Inc. (NASDAQ:XELA)?

At Q4’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2018. By comparison, 12 hedge funds held shares or bullish call options in XELA a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

XELA_may2019

More specifically, Nantahala Capital Management was the largest shareholder of Exela Technologies, Inc. (NASDAQ:XELA), with a stake worth $32.7 million reported as of the end of December. Trailing Nantahala Capital Management was Greenlight Capital, which amassed a stake valued at $32.6 million. Gates Capital Management, Scoggin, and Avenue Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Exela Technologies, Inc. (NASDAQ:XELA) has faced declining sentiment from the smart money, it’s easy to see that there exists a select few hedgies that elected to cut their entire stakes in the third quarter. It’s worth mentioning that James Dinan’s York Capital Management said goodbye to the largest stake of the 700 funds tracked by Insider Monkey, valued at an estimated $20.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $0.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Exela Technologies, Inc. (NASDAQ:XELA). We will take a look at WideOpenWest, Inc. (NYSE:WOW), Himax Technologies, Inc. (NASDAQ:HIMX), NextDecade Corporation (NASDAQ:NEXT), and Argan, Inc. (NYSEAMEX:AGX). This group of stocks’ market values resemble XELA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WOW 13 35063 2
HIMX 9 28168 -1
NEXT 8 452258 2
AGX 13 85300 -4
Average 10.75 150197 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $102 million in XELA’s case. WideOpenWest, Inc. (NYSE:WOW) is the most popular stock in this table. On the other hand NextDecade Corporation (NASDAQ:NEXT) is the least popular one with only 8 bullish hedge fund positions. Exela Technologies, Inc. (NASDAQ:XELA) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately XELA wasn’t nearly as popular as these 15 stock and hedge funds that were betting on XELA were disappointed as the stock returned -13.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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