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Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves.
Hawkins, Inc. (NASDAQ:HWKN) shareholders have witnessed an increase in support from the world's most elite money managers recently. HWKN was in 7 hedge funds' portfolios at the end of the second quarter of 2019. There were 6 hedge funds in our database with HWKN positions at the end of the previous quarter. Our calculations also showed that HWKN isn't among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the new hedge fund action surrounding Hawkins, Inc. (NASDAQ:HWKN).
How have hedgies been trading Hawkins, Inc. (NASDAQ:HWKN)?
At Q2's end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the first quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in HWKN 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.
The largest stake in Hawkins, Inc. (NASDAQ:HWKN) was held by Royce & Associates, which reported holding $4 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $2.6 million position. Other investors bullish on the company included D E Shaw, Winton Capital Management, and Two Sigma Advisors.
As one would reasonably expect, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in Hawkins, Inc. (NASDAQ:HWKN). Citadel Investment Group had $0.3 million invested in the company at the end of the quarter.
Let's go over hedge fund activity in other stocks similar to Hawkins, Inc. (NASDAQ:HWKN). We will take a look at At Home Group Inc. (NYSE:HOME), Duluth Holdings Inc. (NASDAQ:DLTH), SIGA Technologies Inc. (NASDAQ:SIGA), and Magic Software Enterprises Ltd. (NASDAQ:MGIC). This group of stocks' market values match HWKN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOME,15,67444,-17 DLTH,10,18575,-2 SIGA,10,27706,-6 MGIC,3,4820,1 Average,9.5,29636,-6 [/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 $30 million. That figure was $9 million in HWKN's case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand Magic Software Enterprises Ltd. (NASDAQ:MGIC) is the least popular one with only 3 bullish hedge fund positions. Hawkins, Inc. (NASDAQ:HWKN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HWKN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HWKN investors were disappointed as the stock returned -1.6% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
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