Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Hollysys Automation Technologies Ltd (NASDAQ:HOLI) to find out whether it was one of their high conviction long-term ideas.
Is Hollysys Automation Technologies Ltd (NASDAQ:HOLI) a worthy stock to buy now? Prominent investors are getting less bullish. The number of long hedge fund positions retreated by 1 lately. Our calculations also showed that HOLI isn't among the 30 most popular stocks among hedge funds. HOLI was in 15 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 16 hedge funds in our database with HOLI holdings at the end of the previous quarter.
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 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 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 our short portfolio.
We're going to analyze the key hedge fund action encompassing Hollysys Automation Technologies Ltd (NASDAQ:HOLI).
How are hedge funds trading Hollysys Automation Technologies Ltd (NASDAQ:HOLI)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HOLI over the last 14 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Hollysys Automation Technologies Ltd (NASDAQ:HOLI), with a stake worth $44.7 million reported as of the end of December. Trailing Impax Asset Management was D E Shaw, which amassed a stake valued at $5.4 million. Renaissance Technologies, Arrowstreet Capital, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Hollysys Automation Technologies Ltd (NASDAQ:HOLI) has witnessed a decline in interest from the smart money, it's easy to see that there were a few money managers that elected to cut their positions entirely by the end of the third quarter. It's worth mentioning that Robert B. Gillam's McKinley Capital Management said goodbye to the largest position of all the hedgies monitored by Insider Monkey, valued at an estimated $0.7 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund sold off about $0.7 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Hollysys Automation Technologies Ltd (NASDAQ:HOLI). These stocks are Sleep Number Corporation (NASDAQ:SNBR), Engility Holdings Inc (NYSE:EGL), Installed Building Products Inc (NYSE:IBP), and AZZ Incorporated (NYSE:AZZ). This group of stocks' market caps match HOLI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNBR,18,75967,4 EGL,14,72165,-3 IBP,8,125553,-1 AZZ,15,40118,1 Average,13.75,78451,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $70 million in HOLI's case. Sleep Number Corporation (NASDAQ:SNBR) is the most popular stock in this table. On the other hand Installed Building Products Inc (NYSE:IBP) is the least popular one with only 8 bullish hedge fund positions. Hollysys Automation Technologies Ltd (NASDAQ:HOLI) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on HOLI, though not to the same extent, as the stock returned 20.6% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.