Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. 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 AVX Corporation (NYSE:AVX) to find out whether it was one of their high conviction long-term ideas.
AVX Corporation (NYSE:AVX) was in 16 hedge funds' portfolios at the end of the third quarter of 2018. AVX shareholders have witnessed an increase in activity from the world's largest hedge funds recently. There were 13 hedge funds in our database with AVX holdings at the end of the previous quarter. Our calculations also showed that AVX isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the latest hedge fund action surrounding AVX Corporation (NYSE:AVX).
Hedge fund activity in AVX Corporation (NYSE:AVX)
At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in AVX over the last 13 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in AVX Corporation (NYSE:AVX) was held by Royce & Associates, which reported holding $103.9 million worth of stock at the end of September. It was followed by Sensato Capital Management with a $14.1 million position. Other investors bullish on the company included GLG Partners, Renaissance Technologies, and Millennium Management.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Gotham Asset Management, managed by Joel Greenblatt, assembled the biggest position in AVX Corporation (NYSE:AVX). Gotham Asset Management had $1.4 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron's Algert Coldiron Investors also made a $0.5 million investment in the stock during the quarter. The other funds with brand new AVX positions are Alec Litowitz and Ross Laser's Magnetar Capital and Paul Tudor Jones's Tudor Investment Corp.
Let's also examine hedge fund activity in other stocks similar to AVX Corporation (NYSE:AVX). These stocks are BlackLine, Inc. (NASDAQ:BL), CNX Resources Corporation (NYSE:CNX), SiteOne Landscape Supply, Inc. (NYSE:SITE), and Altair Engineering Inc. (NASDAQ:ALTR). This group of stocks' market valuations match AVX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BL,13,274605,-2 CNX,23,950530,0 SITE,15,108915,4 ALTR,13,117362,-4 Average,16,362853,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $363 million. That figure was $152 million in AVX's case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand 0 is the least popular one with only 13 bullish hedge fund positions. AVX Corporation (NYSE:AVX) 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. In this regard CNX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.