Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Ferro Corporation (NYSE:FOE).
Ferro Corporation (NYSE:FOE) was in 16 hedge funds' portfolios at the end of the first quarter of 2019. FOE has experienced a decrease in support from the world's most elite money managers of late. There were 19 hedge funds in our database with FOE positions at the end of the previous quarter. Our calculations also showed that FOE isn't among the 30 most popular stocks among hedge funds.
In the eyes of most market participants, hedge funds are seen as unimportant, outdated investment vehicles of the past. While there are over 8000 funds in operation at present, We hone in on the masters of this club, around 750 funds. It is estimated that this group of investors orchestrate bulk of the smart money's total asset base, and by paying attention to their inimitable stock picks, Insider Monkey has determined numerous investment strategies that have historically outperformed the S&P 500 index. Insider Monkey's flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
Let's view the recent hedge fund action surrounding Ferro Corporation (NYSE:FOE).
What have hedge funds been doing with Ferro Corporation (NYSE:FOE)?
Heading into the second quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in FOE a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, GAMCO Investors was the largest shareholder of Ferro Corporation (NYSE:FOE), with a stake worth $81 million reported as of the end of March. Trailing GAMCO Investors was Luminus Management, which amassed a stake valued at $75.9 million. Royce & Associates, Brigade Capital, and Scopus Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Ferro Corporation (NYSE:FOE) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of fund managers that elected to cut their full holdings in the third quarter. It's worth mentioning that Ken Griffin's Citadel Investment Group sold off the largest stake of the "upper crust" of funds watched by Insider Monkey, valued at close to $0.9 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $0.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Ferro Corporation (NYSE:FOE) but similarly valued. These stocks are Prestige Consumer Healthcare Inc. (NYSE:PBH), Matson, Inc. (NYSE:MATX), FBL Financial Group, Inc. (NYSE:FFG), and AMC Entertainment Holdings Inc (NYSE:AMC). This group of stocks' market values resemble FOE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PBH,13,66863,-2 MATX,9,6472,-3 FFG,7,7522,1 AMC,18,121829,-3 Average,11.75,50672,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $216 million in FOE's case. AMC Entertainment Holdings Inc (NYSE:AMC) is the most popular stock in this table. On the other hand FBL Financial Group, Inc. (NYSE:FFG) is the least popular one with only 7 bullish hedge fund positions. Ferro Corporation (NYSE:FOE) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately FOE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FOE were disappointed as the stock returned -19.6% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.