We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Stoneridge, Inc. (NYSE:SRI) and determine whether hedge funds skillfully traded this stock.
Hedge fund interest in Stoneridge, Inc. (NYSE:SRI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SRI to other stocks including BlackRock Resources & Commodities Strategy Trust (NYSE:BCX), Echo Global Logistics, Inc. (NASDAQ:ECHO), and American Software, Inc. (NASDAQ:AMSWA) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most investors, hedge funds are perceived as slow, old investment vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our experts look at the masters of this group, around 850 funds. These hedge fund managers direct bulk of the hedge fund industry's total capital, and by following their finest equity investments, Insider Monkey has formulated a few investment strategies that have historically outrun the broader indices. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_365194" align="aligncenter" width="392"] David E. Shaw of D.E. Shaw[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's analyze the fresh hedge fund action surrounding Stoneridge, Inc. (NYSE:SRI).
What does smart money think about Stoneridge, Inc. (NYSE:SRI)?
Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SRI over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Stoneridge, Inc. (NYSE:SRI), with a stake worth $9 million reported as of the end of September. Trailing Renaissance Technologies was Private Capital Management, which amassed a stake valued at $7.7 million. Royce & Associates, GAMCO Investors, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Private Capital Management allocated the biggest weight to Stoneridge, Inc. (NYSE:SRI), around 2.4% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.26 percent of its 13F equity portfolio to SRI.
Judging by the fact that Stoneridge, Inc. (NYSE:SRI) has witnessed declining sentiment from hedge fund managers, logic holds that there is a sect of hedge funds who were dropping their full holdings heading into Q4. At the top of the heap, Todd J. Kantor's Encompass Capital Advisors dumped the biggest position of the 750 funds monitored by Insider Monkey, comprising close to $12.1 million in stock. Minhua Zhang's fund, Weld Capital Management, also said goodbye to its stock, about $1.6 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Stoneridge, Inc. (NYSE:SRI) but similarly valued. These stocks are BlackRock Resources & Commodities Strategy Trust (NYSE:BCX), Echo Global Logistics, Inc. (NASDAQ:ECHO), American Software, Inc. (NASDAQ:AMSWA), and Smith & Wesson Brands, Inc. (NASDAQ:AOBC). All of these stocks' market caps match SRI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCX,6,1762,4 ECHO,13,26566,1 AMSWA,12,46226,1 AOBC,22,55666,11 Average,13.25,32555,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $32 million in SRI's case. Smith & Wesson Brands, Inc. (NASDAQ:AOBC) is the most popular stock in this table. On the other hand BlackRock Resources & Commodities Strategy Trust (NYSE:BCX) is the least popular one with only 6 bullish hedge fund positions. Stoneridge, Inc. (NYSE:SRI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately SRI wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SRI investors were disappointed as the stock returned 14.9% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.