At Insider Monkey we follow nearly 750 of the best-performing investors and even though many of them lost money in the last couple of months of 2018 (some actually delivered very strong returns), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.
Barnes & Noble Education Inc (NYSE:BNED) was in 14 hedge funds' portfolios at the end of March. BNED has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 18 hedge funds in our database with BNED holdings at the end of the previous quarter. Our calculations also showed that BNED 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 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 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.
We're going to go over the recent hedge fund action regarding Barnes & Noble Education Inc (NYSE:BNED).
What does smart money think about Barnes & Noble Education Inc (NYSE:BNED)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the fourth quarter of 2018. On the other hand, there were a total of 13 hedge funds with a bullish position in BNED a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Abrams Capital Management held the most valuable stake in Barnes & Noble Education Inc (NYSE:BNED), which was worth $17.9 million at the end of the first quarter. On the second spot was AQR Capital Management which amassed $2.5 million worth of shares. Moreover, Two Sigma Advisors, Arrowstreet Capital, and Royce & Associates were also bullish on Barnes & Noble Education Inc (NYSE:BNED), allocating a large percentage of their portfolios to this stock.
Because Barnes & Noble Education Inc (NYSE:BNED) has experienced falling interest from hedge fund managers, it's safe to say that there was a specific group of funds who sold off their entire stakes heading into Q3. Interestingly, William C. Martin's Raging Capital Management dumped the biggest position of the 700 funds tracked by Insider Monkey, valued at an estimated $2.9 million in stock. Frederick DiSanto's fund, Ancora Advisors, also dumped its stock, about $2.1 million worth. These moves are important to note, as total hedge fund interest was cut by 4 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Barnes & Noble Education Inc (NYSE:BNED) but similarly valued. We will take a look at Blue Apron Holdings, Inc. (NYSE:APRN), CRH Medical Corporation (NYSE:CRHM), Lee Enterprises, Incorporated (NYSE:LEE), and RigNet Inc (NASDAQ:RNET). This group of stocks' market caps are closest to BNED's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APRN,7,3669,2 CRHM,7,29756,-1 LEE,12,19351,1 RNET,4,14144,-1 Average,7.5,16730,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $23 million in BNED's case. Lee Enterprises, Incorporated (NYSE:LEE) is the most popular stock in this table. On the other hand RigNet Inc (NASDAQ:RNET) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Barnes & Noble Education Inc (NYSE:BNED) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately BNED wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BNED were disappointed as the stock returned -25% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.