Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Hoegh LNG Partners LP (NYSE:HMLP) a buy right now? Prominent investors are becoming more confident. The number of long hedge fund bets increased by 1 in recent months. Our calculations also showed that HMLP isn't among the 30 most popular stocks among hedge funds (see the video below). HMLP was in 6 hedge funds' portfolios at the end of June. There were 5 hedge funds in our database with HMLP positions at the end of the previous quarter. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's view the recent hedge fund action regarding Hoegh LNG Partners LP (NYSE:HMLP).
How are hedge funds trading Hoegh LNG Partners LP (NYSE:HMLP)?
At Q2's end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in HMLP a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Hoegh LNG Partners LP (NYSE:HMLP), with a stake worth $11.8 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $4.1 million. Prescott Group Capital Management, Huber Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Hoegh LNG Partners LP (NYSE:HMLP). Marshall Wace LLP had $0.3 million invested in the company at the end of the quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Hoegh LNG Partners LP (NYSE:HMLP) but similarly valued. These stocks are America's Car-Mart, Inc. (NASDAQ:CRMT), Textainer Group Holdings Limited (NYSE:TGH), Independence Holding Company (NYSE:IHC), and Daqo New Energy Corp (NYSE:DQ). This group of stocks' market caps are closest to HMLP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRMT,23,84560,3 TGH,7,17426,-3 IHC,3,15915,1 DQ,6,13363,1 Average,9.75,32816,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $19 million in HMLP's case. America's Car-Mart, Inc. (NASDAQ:CRMT) is the most popular stock in this table. On the other hand Independence Holding Company (NYSE:IHC) is the least popular one with only 3 bullish hedge fund positions. Hoegh LNG Partners LP (NYSE:HMLP) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HMLP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HMLP investors were disappointed as the stock returned -8.4% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.