Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Interface, Inc. (NASDAQ:TILE) ready to rally soon? Investors who are in the know are taking a bearish view. The number of long hedge fund bets retreated by 1 recently. Our calculations also showed that TILE isn't among the 30 most popular stocks among hedge funds. TILE was in 17 hedge funds' portfolios at the end of the third quarter of 2018. There were 18 hedge funds in our database with TILE holdings at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let's take a look at the fresh hedge fund action encompassing Interface, Inc. (NASDAQ:TILE).
What does the smart money think about Interface, Inc. (NASDAQ:TILE)?
Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2018. By comparison, 18 hedge funds held shares or bullish call options in TILE heading into this year. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Ariel Investments held the most valuable stake in Interface, Inc. (NASDAQ:TILE), which was worth $26.2 million at the end of the third quarter. On the second spot was Balyasny Asset Management which amassed $14.4 million worth of shares. Moreover, GLG Partners, AQR Capital Management, and Royce & Associates were also bullish on Interface, Inc. (NASDAQ:TILE), allocating a large percentage of their portfolios to this stock.
Because Interface, Inc. (NASDAQ:TILE) has faced bearish sentiment from the smart money, logic holds that there lies a certain "tier" of funds who sold off their entire stakes in the third quarter. Intriguingly, Benjamin A. Smith's Laurion Capital Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, valued at close to $0.9 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund cut about $0.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Interface, Inc. (NASDAQ:TILE) but similarly valued. We will take a look at Kite Realty Group Trust (NYSE:KRG), The Liberty Braves Group (NASDAQ:BATRK), TriMas Corp (NASDAQ:TRS), and The Liberty Braves Group (NASDAQ:BATRA). This group of stocks' market caps are similar to TILE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KRG,13,32991,1 BATRK,26,405822,3 TRS,16,142267,1 BATRA,8,68522,-1 Average,15.75,162401,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $97 million in TILE's case. The Liberty Braves Group (NASDAQ:BATRK) is the most popular stock in this table. On the other hand The Liberty Braves Group (NASDAQ:BATRA) is the least popular one with only 8 bullish hedge fund positions. Interface, Inc. (NASDAQ:TILE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard BATRK might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.