"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
InnerWorkings, Inc. (NASDAQ:INWK) was in 15 hedge funds' portfolios at the end of September. INWK has experienced an increase in hedge fund interest of late. There were 12 hedge funds in our database with INWK positions at the end of the previous quarter. Our calculations also showed that INWK isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 18 percentage points since May 2014 through December 3, 2018 (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.
We're going to go over the new hedge fund action regarding InnerWorkings, Inc. (NASDAQ:INWK).
What have hedge funds been doing with InnerWorkings, Inc. (NASDAQ:INWK)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards INWK over the last 13 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in InnerWorkings, Inc. (NASDAQ:INWK) was held by Cardinal Capital, which reported holding $23 million worth of stock at the end of September. It was followed by Headlands Capital with a $19 million position. Other investors bullish on the company included Engaged Capital, Engine Capital, and D E Shaw.
As one would reasonably expect, specific money managers were leading the bulls' herd. Engaged Capital, managed by Glenn W. Welling, established the largest position in InnerWorkings, Inc. (NASDAQ:INWK). Engaged Capital had $13.5 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also initiated a $1 million position during the quarter. The following funds were also among the new INWK investors: Paul Marshall and Ian Wace's Marshall Wace LLP and Michael Platt and William Reeves's BlueCrest Capital Mgmt..
Let's go over hedge fund activity in other stocks similar to InnerWorkings, Inc. (NASDAQ:INWK). We will take a look at electroCore, Inc. (NASDAQ:ECOR), IES Holdings, Inc. (NASDAQ:IESC), Sierra Metals Inc. (NYSE:SMTS), and Eagle Bulk Shipping Inc. (NASDAQ:EGLE). This group of stocks' market caps resemble INWK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ECOR,7,16067,-2 IESC,4,261978,0 SMTS,1,47,1 EGLE,17,93764,4 Average,7.25,92964,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $74 million in INWK's case. Eagle Bulk Shipping Inc. (NASDAQ:EGLE) is the most popular stock in this table. On the other hand Sierra Metals Inc. (NYSE:SMTS) is the least popular one with only 1 bullish hedge fund positions. InnerWorkings, Inc. (NASDAQ:INWK) 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. In this regard EGLE might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.