Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Interface, Inc. (NASDAQ:TILE) a first-rate investment today? Investors who are in the know are taking a pessimistic view. The number of long hedge fund bets were cut by 2 in recent months. Our calculations also showed that TILE isn't among the 30 most popular stocks among hedge funds (see the video below). TILE was in 12 hedge funds' portfolios at the end of the second quarter of 2019. There were 14 hedge funds in our database with TILE holdings at the end of the previous quarter. 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 review the latest hedge fund action surrounding Interface, Inc. (NASDAQ:TILE).
How have hedgies been trading Interface, Inc. (NASDAQ:TILE)?
At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TILE over the last 16 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, Ariel Investments was the largest shareholder of Interface, Inc. (NASDAQ:TILE), with a stake worth $15.5 million reported as of the end of March. Trailing Ariel Investments was D E Shaw, which amassed a stake valued at $7.1 million. Royce & Associates, Citadel Investment Group, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Since Interface, Inc. (NASDAQ:TILE) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there is a sect of funds who were dropping their entire stakes in the second quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management said goodbye to the biggest investment of the "upper crust" of funds watched by Insider Monkey, comprising close to $1.4 million in stock. Jeffrey Moskowitz's fund, Harvey Partners, also dropped its stock, about $0.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds in the second quarter.
Let's go over hedge fund activity in other stocks similar to Interface, Inc. (NASDAQ:TILE). These stocks are Navigant Consulting, Inc. (NYSE:NCI), California Resources Corporation (NYSE:CRC), PC Connection, Inc. (NASDAQ:CNXN), and Axsome Therapeutics, Inc. (NASDAQ:AXSM). This group of stocks' market values match TILE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NCI,11,52264,-4 CRC,12,115705,-3 CNXN,8,38391,0 AXSM,16,105819,2 Average,11.75,78045,-1.25 [/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 $78 million. That figure was $36 million in TILE's case. Axsome Therapeutics, Inc. (NASDAQ:AXSM) is the most popular stock in this table. On the other hand PC Connection, Inc. (NASDAQ:CNXN) is the least popular one with only 8 bullish hedge fund positions. Interface, Inc. (NASDAQ:TILE) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TILE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TILE were disappointed as the stock returned -5.3% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.