The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Farmer Brothers Co. (NASDAQ:FARM) based on those filings.
Is Farmer Brothers Co. (NASDAQ:FARM) a first-rate investment today? Hedge funds are getting more optimistic. The number of long hedge fund bets advanced by 3 lately. Our calculations also showed that FARM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FARM was in 13 hedge funds' portfolios at the end of the third quarter of 2019. There were 10 hedge funds in our database with FARM 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' 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.
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Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's go over the recent hedge fund action regarding Farmer Brothers Co. (NASDAQ:FARM).
How have hedgies been trading Farmer Brothers Co. (NASDAQ:FARM)?
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the second quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in FARM a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Trigran Investments held the most valuable stake in Farmer Brothers Co. (NASDAQ:FARM), which was worth $25.5 million at the end of the third quarter. On the second spot was Levin Easterly Partners which amassed $18.1 million worth of shares. Adage Capital Management, Renaissance Technologies, and Millennium Management were 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 Trigran Investments allocated the biggest weight to Farmer Brothers Co. (NASDAQ:FARM), around 4.83% of its 13F portfolio. Levin Easterly Partners is also relatively very bullish on the stock, earmarking 0.51 percent of its 13F equity portfolio to FARM.
Consequently, key money managers were leading the bulls' herd. D E Shaw, managed by David E. Shaw, established the largest position in Farmer Brothers Co. (NASDAQ:FARM). D E Shaw had $0.5 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $0.4 million investment in the stock during the quarter. The only other fund with a new position in the stock is Paul Tudor Jones's Tudor Investment Corp.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Farmer Brothers Co. (NASDAQ:FARM) but similarly valued. We will take a look at Ardmore Shipping Corp (NYSE:ASC), Cherry Hill Mortgage Investment Corp (NYSE:CHMI), Value Line, Inc. (NASDAQ:VALU), and Great Panther Silver Ltd (NYSEAMEX:GPL). This group of stocks' market caps match FARM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASC,14,24877,4 CHMI,9,18326,0 VALU,2,3257,0 GPL,5,3159,0 Average,7.5,12405,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $73 million in FARM's case. Ardmore Shipping Corp (NYSE:ASC) is the most popular stock in this table. On the other hand Value Line, Inc. (NASDAQ:VALU) is the least popular one with only 2 bullish hedge fund positions. Farmer Brothers Co. (NASDAQ:FARM) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on FARM as the stock returned 17.1% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.