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 Standard Motor Products, Inc. (NYSE:SMP).
Standard Motor Products, Inc. (NYSE:SMP) investors should be aware of a decrease in enthusiasm from smart money lately. Our calculations also showed that SMP isn't among the 30 most popular stocks among hedge funds (see the video below). 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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely 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. We're going to take a look at the key hedge fund action regarding Standard Motor Products, Inc. (NYSE:SMP).
How have hedgies been trading Standard Motor Products, Inc. (NYSE:SMP)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in SMP a year ago. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Standard Motor Products, Inc. (NYSE:SMP), which was worth $85 million at the end of the second quarter. On the second spot was GAMCO Investors which amassed $7 million worth of shares. Moreover, Renaissance Technologies, Millennium Management, and Citadel Investment Group were also bullish on Standard Motor Products, Inc. (NYSE:SMP), allocating a large percentage of their portfolios to this stock.
Seeing as Standard Motor Products, Inc. (NYSE:SMP) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedgies who were dropping their positions entirely in the second quarter. At the top of the heap, Paul Tudor Jones's Tudor Investment Corp said goodbye to the largest investment of the "upper crust" of funds watched by Insider Monkey, worth about $0.5 million in stock. Andrew Feldstein and Stephen Siderow's fund, Blue Mountain Capital, also said goodbye to its stock, about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Standard Motor Products, Inc. (NYSE:SMP). These stocks are Upland Software Inc (NASDAQ:UPLD), Meridian Bancorp, Inc. (NASDAQ:EBSB), Organigram Holdings Inc. (NASDAQ:OGI), and Weis Markets, Inc. (NYSE:WMK). All of these stocks' market caps match SMP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UPLD,24,202112,-4 EBSB,11,83875,-4 OGI,5,9237,5 WMK,13,69855,-2 Average,13.25,91270,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $105 million in SMP's case. Upland Software Inc (NASDAQ:UPLD) is the most popular stock in this table. On the other hand Organigram Holdings Inc. (NASDAQ:OGI) is the least popular one with only 5 bullish hedge fund positions. Standard Motor Products, Inc. (NYSE:SMP) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on SMP as the stock returned 7.6% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.