We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Raven Industries, Inc. (NASDAQ:RAVN).
Is Raven Industries, Inc. (NASDAQ:RAVN) the right pick for your portfolio? Investors who are in the know are taking an optimistic view. The number of bullish hedge fund positions inched up by 1 recently. Our calculations also showed that RAVN isn't among the 30 most popular stocks among hedge funds (see the video below). RAVN was in 12 hedge funds' portfolios at the end of June. There were 11 hedge funds in our database with RAVN 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.
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.
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. We're going to view the new hedge fund action regarding Raven Industries, Inc. (NASDAQ:RAVN).
How are hedge funds trading Raven Industries, Inc. (NASDAQ:RAVN)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in RAVN a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Raven Industries, Inc. (NASDAQ:RAVN), which was worth $67.1 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $13.8 million worth of shares. Moreover, Millennium Management, Citadel Investment Group, and Marshall Wace LLP were also bullish on Raven Industries, Inc. (NASDAQ:RAVN), allocating a large percentage of their portfolios to this stock.
Now, key money managers were leading the bulls' herd. Zebra Capital Management, managed by Roger Ibbotson, initiated the largest position in Raven Industries, Inc. (NASDAQ:RAVN). Zebra Capital Management had $0.3 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $0.3 million position during the quarter. The only other fund with a new position in the stock is David Harding's Winton Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Raven Industries, Inc. (NASDAQ:RAVN) but similarly valued. These stocks are AAR Corp. (NYSE:AIR), Phibro Animal Health Corporation (NASDAQ:PAHC), OneSmart International Education Group Limited (NYSE:ONE), and S&T Bancorp, Inc. (NASDAQ:STBA). This group of stocks' market values are similar to RAVN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIR,22,117189,-1 PAHC,16,60038,-2 ONE,7,49934,1 STBA,11,19238,7 Average,14,61600,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $107 million in RAVN's case. AAR Corp. (NYSE:AIR) is the most popular stock in this table. On the other hand OneSmart International Education Group Limited (NYSE:ONE) is the least popular one with only 7 bullish hedge fund positions. Raven Industries, Inc. (NASDAQ:RAVN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 RAVN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RAVN investors were disappointed as the stock returned -6.4% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.