Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Cambium Learning Group, Inc. (NASDAQ:ABCD).
Is Cambium Learning Group, Inc. (NASDAQ:ABCD) a safe investment right now? The best stock pickers are becoming less hopeful. The number of bullish hedge fund positions were trimmed by 2 recently. Our calculations also showed that ABCD isn't among the 30 most popular stocks among hedge funds.
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' 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.
We're going to analyze the recent hedge fund action regarding Cambium Learning Group, Inc. (NASDAQ:ABCD).
Hedge fund activity in Cambium Learning Group, Inc. (NASDAQ:ABCD)
At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ABCD over the last 13 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the number one position in Cambium Learning Group, Inc. (NASDAQ:ABCD). Renaissance Technologies has a $19.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $2.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism contain Mario Gabelli's GAMCO Investors, Josh Goldberg's G2 Investment Partners Management and Cliff Asness's AQR Capital Management.
Due to the fact that Cambium Learning Group, Inc. (NASDAQ:ABCD) has faced falling interest from the smart money, logic holds that there was a specific group of hedge funds who were dropping their entire stakes last quarter. Interestingly, Jason Mudrick's Mudrick Capital Management dropped the largest investment of the "upper crust" of funds watched by Insider Monkey, comprising about $2.5 million in stock. Israel Englander's fund, Millennium Management, also said goodbye to its stock, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cambium Learning Group, Inc. (NASDAQ:ABCD) but similarly valued. We will take a look at BlackRock Municipal Income Trust (NYSE:BFK), Allegiance Bancshares, Inc. (NASDAQ:ABTX), Tilly's Inc (NYSE:TLYS), and Hometrust Bancshares Inc (NASDAQ:HTBI). All of these stocks' market caps are closest to ABCD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BFK,1,539,0 ABTX,7,13917,1 TLYS,21,92361,9 HTBI,9,74161,0 Average,9.5,45245,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $28 million in ABCD's case. Tilly's Inc (NYSE:TLYS) is the most popular stock in this table. On the other hand BlackRock Municipal Income Trust (NYSE:BFK) is the least popular one with only 1 bullish hedge fund positions. Cambium Learning Group, Inc. (NASDAQ:ABCD) 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. In this regard TLYS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.