It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 eXp World Holdings, Inc. (NASDAQ:EXPI).
eXp World Holdings, Inc. (NASDAQ:EXPI) was in 5 hedge funds' portfolios at the end of September. EXPI investors should pay attention to an increase in support from the world's most elite money managers lately. There were 2 hedge funds in our database with EXPI holdings at the end of the previous quarter. Our calculations also showed that EXPI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to view the new hedge fund action regarding eXp World Holdings, Inc. (NASDAQ:EXPI).
Hedge fund activity in eXp World Holdings, Inc. (NASDAQ:EXPI)
At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 150% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EXPI over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in eXp World Holdings, Inc. (NASDAQ:EXPI) was held by Intrinsic Edge Capital, which reported holding $2.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $0.7 million position. Other investors bullish on the company included Millennium Management, ExodusPoint Capital, and Winton Capital Management. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to eXp World Holdings, Inc. (NASDAQ:EXPI), around 0.31% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to EXPI.
Consequently, specific money managers were breaking ground themselves. Intrinsic Edge Capital, managed by Mark Coe, established the most valuable position in eXp World Holdings, Inc. (NASDAQ:EXPI). Intrinsic Edge Capital had $2.8 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $0.5 million investment in the stock during the quarter. The only other fund with a brand new EXPI position is David Harding's Winton Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as eXp World Holdings, Inc. (NASDAQ:EXPI) but similarly valued. We will take a look at Repay Holdings Corporation (NASDAQ:RPAY), Catchmark Timber Trust Inc (NYSE:CTT), FutureFuel Corp. (NYSE:FF), and Ituran Location and Control Ltd. (NASDAQ:ITRN). All of these stocks' market caps match EXPI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RPAY,9,61061,-3 CTT,11,63571,2 FF,10,45499,-1 ITRN,11,95048,-2 Average,10.25,66295,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $4 million in EXPI's case. Catchmark Timber Trust Inc (NYSE:CTT) is the most popular stock in this table. On the other hand Repay Holdings Corporation (NASDAQ:RPAY) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks eXp World Holdings, Inc. (NASDAQ:EXPI) is even less popular than RPAY. Hedge funds clearly dropped the ball on EXPI as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on EXPI as the stock returned 30.7% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.