Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Marten Transport, Ltd (NASDAQ:MRTN) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds' portfolios at the end of March. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as W&T Offshore, Inc. (NYSE:WTI), Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), and PC Connection, Inc. (NASDAQ:CNXN) to gather more data points.
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 40 percentage points since May 2014 through May 30, 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.
We're going to take a look at the new hedge fund action surrounding Marten Transport, Ltd (NASDAQ:MRTN).
Hedge fund activity in Marten Transport, Ltd (NASDAQ:MRTN)
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards MRTN over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Empirical Capital Partners was the largest shareholder of Marten Transport, Ltd (NASDAQ:MRTN), with a stake worth $9.6 million reported as of the end of March. Trailing Empirical Capital Partners was MSDC Management, which amassed a stake valued at $8.9 million. 12th Street Asset Management, Millennium Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Since Marten Transport, Ltd (NASDAQ:MRTN) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedgies who sold off their full holdings by the end of the third quarter. Intriguingly, Ken Grossman and Glen Schneider's SG Capital Management cut the largest investment of the 700 funds monitored by Insider Monkey, comprising about $0.5 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund dumped about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Marten Transport, Ltd (NASDAQ:MRTN). These stocks are W&T Offshore, Inc. (NYSE:WTI), Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), PC Connection, Inc. (NASDAQ:CNXN), and CNX Midstream Partners LP (NYSE:CNXM). This group of stocks' market valuations match MRTN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WTI,24,113104,3 VNDA,19,254336,0 CNXN,8,41972,2 CNXM,7,17770,1 Average,14.5,106796,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $49 million in MRTN's case. W&T Offshore, Inc. (NYSE:WTI) is the most popular stock in this table. On the other hand CNX Midstream Partners LP (NYSE:CNXM) is the least popular one with only 7 bullish hedge fund positions. Marten Transport, Ltd (NASDAQ:MRTN) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately MRTN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MRTN were disappointed as the stock returned 1.3% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.