During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of SPX FLOW, Inc. (NYSE:FLOW) and see how the stock is affected by the recent hedge fund activity.
Is SPX FLOW, Inc. (NYSE:FLOW) going to take off soon? The smart money is getting more bullish. The number of bullish hedge fund bets improved by 7 recently. Our calculations also showed that FLOW isn't among the 30 most popular stocks among hedge funds. FLOW was in 20 hedge funds' portfolios at the end of December. There were 13 hedge funds in our database with FLOW positions at the end of the previous quarter.
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' 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.
[caption id="attachment_733253" align="aligncenter" width="473"] Arnaud Ajdler Engine Capital[/caption]
We're going to check out the recent hedge fund action surrounding SPX FLOW, Inc. (NYSE:FLOW).
How have hedgies been trading SPX FLOW, Inc. (NYSE:FLOW)?
At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 54% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FLOW over the last 14 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Impax Asset Management was the largest shareholder of SPX FLOW, Inc. (NYSE:FLOW), with a stake worth $49 million reported as of the end of December. Trailing Impax Asset Management was Diamond Hill Capital, which amassed a stake valued at $34.1 million. D E Shaw, Rutabaga Capital Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, specific money managers have jumped into SPX FLOW, Inc. (NYSE:FLOW) headfirst. Millennium Management, managed by Israel Englander, established the biggest position in SPX FLOW, Inc. (NYSE:FLOW). Millennium Management had $1.7 million invested in the company at the end of the quarter. Arnaud Ajdler's Engine Capital also made a $1.7 million investment in the stock during the quarter. The following funds were also among the new FLOW investors: Ken Griffin's Citadel Investment Group, Brandon Haley's Holocene Advisors, and Minhua Zhang's Weld Capital Management.
Let's now review hedge fund activity in other stocks similar to SPX FLOW, Inc. (NYSE:FLOW). These stocks are GTT Communications Inc (NYSE:GTT), NutriSystem Inc. (NASDAQ:NTRI), Redfin Corporation (NASDAQ:RDFN), and Hailiang Education Group Inc. (NASDAQ:HLG). This group of stocks' market valuations match FLOW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GTT,15,350150,1 NTRI,29,273976,11 RDFN,7,114016,-5 HLG,3,5620,-1 Average,13.5,185941,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $131 million in FLOW's case. NutriSystem Inc. (NASDAQ:NTRI) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 3 bullish hedge fund positions. SPX FLOW, Inc. (NYSE:FLOW) 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 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 FLOW wasn't nearly as popular as these 15 stock and hedge funds that were betting on FLOW were disappointed as the stock returned 16.2% 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.