"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Mitek Systems, Inc. (NASDAQ:MITK).
Is Mitek Systems, Inc. (NASDAQ:MITK) ready to rally soon? Money managers are buying. The number of bullish hedge fund positions increased by 3 lately. Our calculations also showed that MITK isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to review the latest hedge fund action surrounding Mitek Systems, Inc. (NASDAQ:MITK).
How are hedge funds trading Mitek Systems, Inc. (NASDAQ:MITK)?
Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the second quarter of 2018. On the other hand, there were a total of 13 hedge funds with a bullish position in MITK a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Prescott Group Capital Management held the most valuable stake in Mitek Systems, Inc. (NASDAQ:MITK), which was worth $6.7 million at the end of the fourth quarter. On the second spot was P.A.W. CAPITAL PARTNERS which amassed $4.6 million worth of shares. Moreover, Potrero Capital Research, Hudson Bay Capital Management, and Elliott Management were also bullish on Mitek Systems, Inc. (NASDAQ:MITK), allocating a large percentage of their portfolios to this stock.
Consequently, key hedge funds were leading the bulls' herd. Potrero Capital Research, managed by Jack Ripsteen, assembled the most valuable position in Mitek Systems, Inc. (NASDAQ:MITK). Potrero Capital Research had $4.5 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also made a $3.5 million investment in the stock during the quarter. The following funds were also among the new MITK investors: David Alexander Witkin's Beryl Capital Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Bradley Louis Radoff's Fondren Management.
Let's also examine hedge fund activity in other stocks similar to Mitek Systems, Inc. (NASDAQ:MITK). These stocks are Scorpio Bulkers Inc (NYSE:SALT), Arvinas, Inc. (NASDAQ:ARVN), Model N Inc (NYSE:MODN), and The York Water Company (NASDAQ:YORW). This group of stocks' market caps are closest to MITK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SALT,9,57971,-1 ARVN,14,101574,-3 MODN,14,66447,0 YORW,5,15118,-1 Average,10.5,60278,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $32 million in MITK's case. Arvinas, Inc. (NASDAQ:ARVN) is the most popular stock in this table. On the other hand The York Water Company (NASDAQ:YORW) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Mitek Systems, Inc. (NASDAQ:MITK) is more popular among hedge funds. 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. Unfortunately MITK wasn't nearly as popular as these 15 stock and hedge funds that were betting on MITK were disappointed as the stock returned 8.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.