We can judge whether Emmis Communications Corporation (NASDAQ:EMMS) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Hedge fund interest in Emmis Communications Corporation (NASDAQ:EMMS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Equillium, Inc. (NASDAQ:EQ), JMP Group LLC (NYSE:JMP), and Ecology and Environment, Inc. (NASDAQ:EEI) to gather more data points. Our calculations also showed that EMMS isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_27209" align="aligncenter" width="444"] Jim Simons founder of Renaissance Technologies[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the key hedge fund action surrounding Emmis Communications Corporation (NASDAQ:EMMS).
How have hedgies been trading Emmis Communications Corporation (NASDAQ:EMMS)?
At the end of the third quarter, a total of 2 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 2 hedge funds with a bullish position in EMMS a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, holds the biggest position in Emmis Communications Corporation (NASDAQ:EMMS). Nantahala Capital Management has a $3.9 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, founded by Jim Simons, which holds a $1.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. In terms of the portfolio weights assigned to each position Nantahala Capital Management allocated the biggest weight to Emmis Communications Corporation (NASDAQ:EMMS), around 0.15% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0012 percent of its 13F equity portfolio to EMMS.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now take a look at hedge fund activity in other stocks similar to Emmis Communications Corporation (NASDAQ:EMMS). These stocks are Equillium, Inc. (NASDAQ:EQ), JMP Group LLC (NYSE:JMP), Ecology and Environment, Inc. (NASDAQ:EEI), and Nuverra Environmental Solutions Inc (NYSE:NES). This group of stocks' market valuations match EMMS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQ,3,4791,-1 JMP,3,201,1 EEI,4,16269,0 NES,5,30207,0 Average,3.75,12867,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $5 million in EMMS's case. Nuverra Environmental Solutions Inc (NYSE:NES) is the most popular stock in this table. On the other hand Equillium, Inc. (NASDAQ:EQ) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Emmis Communications Corporation (NASDAQ:EMMS) is even less popular than EQ. Hedge funds dodged a bullet by taking a bearish stance towards EMMS. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately EMMS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EMMS investors were disappointed as the stock returned -8.2% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.