We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 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 Xcel Brands Inc (NASDAQ:XELB).
Xcel Brands Inc (NASDAQ:XELB) shareholders have witnessed an increase in hedge fund interest recently. Our calculations also showed that XELB 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.
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 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_673968" align="alignnone" width="2048"] David Keidan of Buckingham Capital[/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 check out the new hedge fund action regarding Xcel Brands Inc (NASDAQ:XELB).
What have hedge funds been doing with Xcel Brands Inc (NASDAQ:XELB)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in XELB a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, David Keidan's Buckingham Capital Management has the most valuable position in Xcel Brands Inc (NASDAQ:XELB), worth close to $0.4 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $0.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Paul Marshall and Ian Wace's Marshall Wace, Chuck Royce's Royce & Associates and . In terms of the portfolio weights assigned to each position Buckingham Capital Management allocated the biggest weight to Xcel Brands Inc (NASDAQ:XELB), around 0.05% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, setting aside 0.0003 percent of its 13F equity portfolio to XELB.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Xcel Brands Inc (NASDAQ:XELB) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, created the largest position in Xcel Brands Inc (NASDAQ:XELB). Marshall Wace had $0 million invested in the company at the end of the quarter. Chuck Royce's Royce & Associates also initiated a $0 million position during the quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Xcel Brands Inc (NASDAQ:XELB) but similarly valued. We will take a look at Capstone Turbine Corporation (NASDAQ:CPST), Actinium Pharmaceuticals Inc (NYSE:ATNM), Basic Energy Services, Inc (NYSE:BAS), and National Holdings Corporation (NASDAQ:NHLD). This group of stocks' market valuations are similar to XELB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPST,5,3897,0 ATNM,6,3882,0 BAS,8,11744,0 NHLD,2,147,0 Average,5.25,4918,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $1 million in XELB's case. Basic Energy Services, Inc (NYSE:BAS) is the most popular stock in this table. On the other hand National Holdings Corporation (NASDAQ:NHLD) is the least popular one with only 2 bullish hedge fund positions. Xcel Brands Inc (NASDAQ:XELB) 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 XELB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); XELB investors were disappointed as the stock returned -24.9% 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.