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Were Hedge Funds Right About Dumping iRobot Corporation (IRBT)?

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 June 28 holdings, data that is available nowhere else. Should you consider iRobot Corporation (NASDAQ:IRBT) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is iRobot Corporation (NASDAQ:IRBT) undervalued? Money managers are turning less bullish. The number of long hedge fund bets were trimmed by 6 in recent months. Our calculations also showed that IRBT isn’t among the 30 most popular stocks among hedge funds (view the video below). IRBT was in 9 hedge funds’ portfolios at the end of the second quarter of 2019. There were 15 hedge funds in our database with IRBT positions at the end of the previous quarter.
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.

Ken Fisher - FISHER ASSET MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the recent hedge fund action surrounding iRobot Corporation (NASDAQ:IRBT).

Hedge fund activity in iRobot Corporation (NASDAQ:IRBT)

Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards IRBT over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

No of Hedge Funds with IRBT Positions

The largest stake in iRobot Corporation (NASDAQ:IRBT) was held by Citadel Investment Group, which reported holding $18.6 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $14.1 million position. Other investors bullish on the company included Citadel Investment Group, D E Shaw, and Fisher Asset Management.

Due to the fact that iRobot Corporation (NASDAQ:IRBT) has witnessed a decline in interest from the smart money, it’s safe to say that there is a sect of money managers that decided to sell off their entire stakes heading into Q3. Intriguingly, Principal Global Investors’s Columbus Circle Investors sold off the largest stake of all the hedgies watched by Insider Monkey, totaling close to $35.3 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund sold off about $4.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 6 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to iRobot Corporation (NASDAQ:IRBT). These stocks are Agree Realty Corporation (NYSE:ADC), SeaWorld Entertainment Inc (NYSE:SEAS), Triton International Limited (NYSE:TRTN), and Taubman Centers, Inc. (NYSE:TCO). This group of stocks’ market values match IRBT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADC 11 97389 3
SEAS 32 1206789 5
TRTN 14 32144 -4
TCO 25 150300 11
Average 20.5 371656 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $372 million. That figure was $58 million in IRBT’s case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Agree Realty Corporation (NYSE:ADC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks iRobot Corporation (NASDAQ:IRBT) is even less popular than ADC. Hedge funds dodged a bullet by taking a bearish stance towards IRBT. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IRBT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); IRBT investors were disappointed as the stock returned -32.7% 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.

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