Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards AutoWeb, Inc. (NASDAQ:AUTO) to find out whether it was one of their high conviction long-term ideas.
Is AutoWeb, Inc. (NASDAQ:AUTO) going to take off soon? Hedge funds are getting less optimistic. The number of long hedge fund bets were trimmed by 2 in recent months. Our calculations also showed that AUTO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AUTO was in 3 hedge funds' portfolios at the end of the third quarter of 2019. There were 5 hedge funds in our database with AUTO holdings 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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/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. Keeping this in mind we're going to go over the fresh hedge fund action encompassing AutoWeb, Inc. (NASDAQ:AUTO).
Hedge fund activity in AutoWeb, Inc. (NASDAQ:AUTO)
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in AUTO a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Kokino LLC was the largest shareholder of AutoWeb, Inc. (NASDAQ:AUTO), with a stake worth $3 million reported as of the end of September. Trailing Kokino LLC was Renaissance Technologies, which amassed a stake valued at $1.3 million. Two Sigma Advisors was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kokino LLC allocated the biggest weight to AutoWeb, Inc. (NASDAQ:AUTO), around 11.09% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0011 percent of its 13F equity portfolio to AUTO.
Because AutoWeb, Inc. (NASDAQ:AUTO) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there were a few hedge funds who were dropping their entire stakes heading into Q4. Intriguingly, Frederick DiSanto's Ancora Advisors sold off the biggest investment of the 750 funds watched by Insider Monkey, valued at an estimated $0.3 million in stock, and Bradley Louis Radoff's Fondren Management was right behind this move, as the fund cut about $0.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as AutoWeb, Inc. (NASDAQ:AUTO) but similarly valued. These stocks are Evogene Ltd. (NASDAQ:EVGN), Salem Media Group, Inc. (NASDAQ:SALM), HyreCar Inc. (NASDAQ:HYRE), and Issuer Direct Corporation (NYSE:ISDR). This group of stocks' market values are similar to AUTO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVGN,3,1264,1 SALM,4,1993,-1 HYRE,7,5406,4 ISDR,1,1219,-1 Average,3.75,2471,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $4 million in AUTO's case. HyreCar Inc. (NASDAQ:HYRE) is the most popular stock in this table. On the other hand Issuer Direct Corporation (NYSE:ISDR) is the least popular one with only 1 bullish hedge fund positions. AutoWeb, Inc. (NASDAQ:AUTO) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AUTO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AUTO investors were disappointed as the stock returned -18.4% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.