World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's take a look at the key hedge fund action regarding Calix Inc (NYSE:CALX).
What does the smart money think about Calix Inc (NYSE:CALX)?
Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in CALX a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Divisar Capital held the most valuable stake in Calix Inc (NYSE:CALX), which was worth $29.9 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $28.3 million worth of shares. Moreover, Nokomis Capital, D E Shaw, and Voce Capital were also bullish on Calix Inc (NYSE:CALX), allocating a large percentage of their portfolios to this stock.
Now, specific money managers have jumped into Calix Inc (NYSE:CALX) headfirst. Divisar Capital, managed by Steven Baughman, created the most valuable position in Calix Inc (NYSE:CALX). Divisar Capital had $29.9 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $5.3 million position during the quarter. The following funds were also among the new CALX investors: James Dondero's Highland Capital Management, Cliff Asness's AQR Capital Management, and Paul Tudor Jones's Tudor Investment Corp.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Calix Inc (NYSE:CALX) but similarly valued. We will take a look at Veritex Holdings Inc (NASDAQ:VBTX), HarborOne Bancorp, Inc. (NASDAQ:HONE), Shoe Carnival, Inc. (NASDAQ:SCVL), and Domo Inc. (NASDAQ:DOMO). All of these stocks' market caps are closest to CALX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VBTX,8,51816,-9 HONE,4,6758,-2 SCVL,19,71747,4 DOMO,13,76502,-2 Average,11,51706,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $120 million in CALX's case. Shoe Carnival, Inc. (NASDAQ:SCVL) is the most popular stock in this table. On the other hand HarborOne Bancorp, Inc. (NASDAQ:HONE) is the least popular one with only 4 bullish hedge fund positions. Calix Inc (NYSE:CALX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CALX wasn't nearly as popular as these 15 stock and hedge funds that were betting on CALX were disappointed as the stock returned -29.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.