Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Cactus, Inc. (NYSE:WHD) investors should be aware of an increase in hedge fund interest of late. WHD was in 27 hedge funds' portfolios at the end of the first quarter of 2019. There were 18 hedge funds in our database with WHD positions at the end of the previous quarter. Our calculations also showed that whd isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's analyze the new hedge fund action encompassing Cactus, Inc. (NYSE:WHD).
How are hedge funds trading Cactus, Inc. (NYSE:WHD)?
At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in WHD 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.
Among these funds, Millennium Management held the most valuable stake in Cactus, Inc. (NYSE:WHD), which was worth $58.7 million at the end of the first quarter. On the second spot was Citadel Investment Group which amassed $58.7 million worth of shares. Moreover, Encompass Capital Advisors, Marshall Wace LLP, and Arosa Capital Management were also bullish on Cactus, Inc. (NYSE:WHD), allocating a large percentage of their portfolios to this stock.
Consequently, key money managers have been driving this bullishness. Magnetar Capital, managed by Alec Litowitz and Ross Laser, created the biggest position in Cactus, Inc. (NYSE:WHD). Magnetar Capital had $14.2 million invested in the company at the end of the quarter. Steve Pattyn's Yaupon Capital also initiated a $11.3 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Benjamin A. Smith's Laurion Capital Management, and Alexander Mitchell's Scopus Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cactus, Inc. (NYSE:WHD) but similarly valued. These stocks are Quaker Chemical Corp (NYSE:KWR), Avista Corp (NYSE:AVA), Vishay Intertechnology, Inc. (NYSE:VSH), and Sprouts Farmers Market Inc (NASDAQ:SFM). This group of stocks' market caps resemble WHD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KWR,11,145447,-2 AVA,18,176178,0 VSH,21,339355,2 SFM,21,253525,-1 Average,17.75,228626,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $292 million in WHD's case. Vishay Intertechnology, Inc. (NYSE:VSH) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Cactus, Inc. (NYSE:WHD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately WHD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WHD were disappointed as the stock returned -8.3% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.