We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Cogent Communications Holdings, Inc. (NASDAQ:CCOI).
Is Cogent Communications Holdings, Inc. (NASDAQ:CCOI) worth your attention right now? Hedge funds are taking a bullish view. The number of bullish hedge fund positions inched up by 8 in recent months. Our calculations also showed that CCOI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CCOI was in 26 hedge funds' portfolios at the end of the third quarter of 2019. There were 18 hedge funds in our database with CCOI holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/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. Let's review the key hedge fund action surrounding Cogent Communications Holdings, Inc. (NASDAQ:CCOI).
Hedge fund activity in Cogent Communications Holdings, Inc. (NASDAQ:CCOI)
Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the second quarter of 2019. By comparison, 12 hedge funds held shares or bullish call options in CCOI a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Cogent Communications Holdings, Inc. (NASDAQ:CCOI), worth close to $199.2 million, amounting to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Noam Gottesman of GLG Partners, with a $33.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions encompass Israel Englander's Millennium Management, Mark Coe's Intrinsic Edge Capital and Paul Marshall and Ian Wace's Marshall Wace. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to Cogent Communications Holdings, Inc. (NASDAQ:CCOI), around 1.7% of its portfolio. Skylands Capital is also relatively very bullish on the stock, dishing out 0.71 percent of its 13F equity portfolio to CCOI.
As aggregate interest increased, key hedge funds were leading the bulls' herd. Intrinsic Edge Capital, managed by Mark Coe, initiated the biggest position in Cogent Communications Holdings, Inc. (NASDAQ:CCOI). Intrinsic Edge Capital had $15.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also made a $6.1 million investment in the stock during the quarter. The other funds with brand new CCOI positions are George McCabe's Portolan Capital Management, Benjamin A. Smith's Laurion Capital Management, and Paul Tudor Jones's Tudor Investment Corp.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cogent Communications Holdings, Inc. (NASDAQ:CCOI) but similarly valued. We will take a look at Independent Bank Corp. (NASDAQ:INDB), AVX Corporation (NYSE:AVX), South State Corporation (NASDAQ:SSB), and Wingstop Inc (NASDAQ:WING). This group of stocks' market valuations are similar to CCOI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INDB,12,20276,1 AVX,13,68575,2 SSB,17,30763,3 WING,23,301040,-1 Average,16.25,105164,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $303 million in CCOI's case. Wingstop Inc (NASDAQ:WING) is the most popular stock in this table. On the other hand Independent Bank Corp. (NASDAQ:INDB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CCOI as the stock returned 14.9% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
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