Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. Trends reversed 180 degrees during the first quarter amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the first quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Cavco Industries, Inc. (NASDAQ:CVCO).
Cavco Industries, Inc. (NASDAQ:CVCO) has seen a decrease in support from the world's most elite money managers of late. Our calculations also showed that CVCO 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.
[caption id="attachment_375529" align="aligncenter" width="450"] Mario Gabelli of GAMCO Investors[/caption]
We're going to review the new hedge fund action regarding Cavco Industries, Inc. (NASDAQ:CVCO).
What does the smart money think about Cavco Industries, Inc. (NASDAQ:CVCO)?
Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CVCO over the last 15 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli's GAMCO Investors has the largest position in Cavco Industries, Inc. (NASDAQ:CVCO), worth close to $35.4 million, amounting to 0.3% of its total 13F portfolio. The second largest stake is held by Jim Simons of Renaissance Technologies, with a $31.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions contain Jeffrey Gendell's Tontine Asset Management, Richard Scott Greeder's Broad Bay Capital and John Khoury's Long Pond Capital.
Judging by the fact that Cavco Industries, Inc. (NASDAQ:CVCO) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there was a specific group of hedge funds who were dropping their entire stakes last quarter. It's worth mentioning that J. Carlo Cannell's Cannell Capital dropped the largest position of all the hedgies followed by Insider Monkey, totaling an estimated $7 million in stock, and John Osterweis's Osterweis Capital Management was right behind this move, as the fund said goodbye to about $3.1 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Cavco Industries, Inc. (NASDAQ:CVCO). We will take a look at AZZ Incorporated (NYSE:AZZ), Benchmark Electronics, Inc. (NYSE:BHE), Astronics Corporation (NASDAQ:ATRO), and Piper Jaffray Companies (NYSE:PJC). This group of stocks' market caps are similar to CVCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AZZ,16,43674,1 BHE,19,75180,7 ATRO,13,104004,6 PJC,8,46296,3 Average,14,67289,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $125 million in CVCO's case. Benchmark Electronics, Inc. (NYSE:BHE) is the most popular stock in this table. On the other hand Piper Jaffray Companies (NYSE:PJC) is the least popular one with only 8 bullish hedge fund positions. Cavco Industries, Inc. (NASDAQ:CVCO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CVCO as the stock returned 26% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.