The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let's look at how this market volatility affected the sentiment of hedge funds towards FARO Technologies, Inc. (NASDAQ:FARO), and what that likely means for the prospects of the company and its stock.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to view the latest hedge fund action surrounding FARO Technologies, Inc. (NASDAQ:FARO).
What have hedge funds been doing with FARO Technologies, Inc. (NASDAQ:FARO)?
Heading into the first quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in FARO 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.
Of the funds tracked by Insider Monkey, Chuck Royce's Royce & Associates has the most valuable position in FARO Technologies, Inc. (NASDAQ:FARO), worth close to $25.2 million, comprising 0.2% of its total 13F portfolio. The second most bullish fund manager is Jim Simons of Renaissance Technologies, with a $5.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish encompass John D. Gillespie's Prospector Partners, Ken Fisher's Fisher Asset Management and Israel Englander's Millennium Management.
Judging by the fact that FARO Technologies, Inc. (NASDAQ:FARO) has witnessed a decline in interest from the smart money, we can see that there was a specific group of hedgies who sold off their positions entirely last quarter. Interestingly, David Harding's Winton Capital Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, worth close to $8.9 million in call options, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dropped about $0.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as FARO Technologies, Inc. (NASDAQ:FARO) but similarly valued. We will take a look at SunPower Corporation (NASDAQ:SPWR), Jianpu Technology Inc. (NYSE:JT), Ruth's Hospitality Group, Inc. (NASDAQ:RUTH), and Alder Biopharmaceuticals Inc (NASDAQ:ALDR). This group of stocks' market valuations resemble FARO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPWR,8,24056,-2 JT,5,27860,1 RUTH,17,50161,2 ALDR,15,207447,-1 Average,11.25,77381,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $39 million in FARO's case. Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) is the most popular stock in this table. On the other hand Jianpu Technology Inc. (NYSE:JT) is the least popular one with only 5 bullish hedge fund positions. FARO Technologies, Inc. (NASDAQ:FARO) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on FARO as the stock returned 38.9% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.