We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 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 The Lovesac Company (NASDAQ:LOVE).
The Lovesac Company (NASDAQ:LOVE) shareholders have witnessed an increase in activity from the world's largest hedge funds in recent months. LOVE was in 10 hedge funds' portfolios at the end of the second quarter of 2019. There were 8 hedge funds in our database with LOVE positions at the end of the previous quarter. Our calculations also showed that LOVE isn't among the 30 most popular stocks among hedge funds (see the video below). 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the latest hedge fund action regarding The Lovesac Company (NASDAQ:LOVE).
What have hedge funds been doing with The Lovesac Company (NASDAQ:LOVE)?
Heading into the third quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in LOVE a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in The Lovesac Company (NASDAQ:LOVE) was held by Driehaus Capital, which reported holding $16.1 million worth of stock at the end of March. It was followed by Royce & Associates with a $9.6 million position. Other investors bullish on the company included Skylands Capital, Manatuck Hill Partners, and Venator Capital Management.
As aggregate interest increased, key hedge funds have jumped into The Lovesac Company (NASDAQ:LOVE) headfirst. Columbus Circle Investors, managed by Principal Global Investors, assembled the largest position in The Lovesac Company (NASDAQ:LOVE). Columbus Circle Investors had $2 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as The Lovesac Company (NASDAQ:LOVE) but similarly valued. We will take a look at Powell Industries, Inc. (NASDAQ:POWL), Noble Corporation plc (NYSE:NE), Scholar Rock Holding Corporation (NASDAQ:SRRK), and PAR Technology Corporation (NYSE:PAR). This group of stocks' market caps match LOVE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position POWL,11,32062,2 NE,16,67086,-7 SRRK,8,52673,3 PAR,5,31863,-1 Average,10,45921,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $46 million in LOVE's case. Noble Corporation plc (NYSE:NE) is the most popular stock in this table. On the other hand PAR Technology Corporation (NYSE:PAR) is the least popular one with only 5 bullish hedge fund positions. The Lovesac Company (NASDAQ:LOVE) 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 LOVE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LOVE investors were disappointed as the stock returned -39.9% 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.