The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing more than 750 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of September 30th, 2019. In this article, we are going to take a look at smart money sentiment towards Frequency Electronics, Inc. (NASDAQ:FEIM).
Frequency Electronics, Inc. (NASDAQ:FEIM) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. At the end of this article we will also compare FEIM to other stocks including YRC Worldwide, Inc. (NASDAQ:YRCW), Blue Apron Holdings, Inc. (NYSE:APRN), and Hallador Energy Co (NASDAQ:HNRG) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_193003" align="alignnone" width="600"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a look at the key hedge fund action regarding Frequency Electronics, Inc. (NASDAQ:FEIM).
How are hedge funds trading Frequency Electronics, Inc. (NASDAQ:FEIM)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in FEIM a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce's Royce & Associates has the most valuable position in Frequency Electronics, Inc. (NASDAQ:FEIM), worth close to $8 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is Renaissance Technologies holding a $3.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. In terms of the portfolio weights assigned to each position, Dalton Investments allocated the biggest weight to Frequency Electronics, Inc. (NASDAQ:FEIM), around 0.08% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to FEIM.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's check out hedge fund activity in other stocks similar to Frequency Electronics, Inc. (NASDAQ:FEIM). We will take a look at YRC Worldwide, Inc. (NASDAQ:YRCW), Blue Apron Holdings, Inc. (NYSE:APRN), Hallador Energy Co (NASDAQ:HNRG), and Jounce Therapeutics, Inc. (NASDAQ:JNCE). This group of stocks' market caps are similar to FEIM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YRCW,6,6095,-2 APRN,8,14612,3 HNRG,9,3911,0 JNCE,9,2064,-1 Average,8,6671,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $11 million in FEIM's case. Hallador Energy Co (NASDAQ:HNRG) is the most popular stock in this table. On the other hand, YRC Worldwide, Inc. (NASDAQ:YRCW) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Frequency Electronics, Inc. (NASDAQ:FEIM) is even less popular than YRCW. Hedge funds dodged a bullet by taking a bearish stance towards FEIM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately, FEIM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FEIM investors were disappointed as the stock returned -16.9% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.