Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Unifi, Inc. (NYSE:UFI) to find out whether it was one of their high conviction long-term ideas.
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.
Let's review the new hedge fund action surrounding Unifi, Inc. (NYSE:UFI).
How have hedgies been trading Unifi, Inc. (NYSE:UFI)?
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards UFI over the last 14 quarters. 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, Impala Asset Management held the most valuable stake in Unifi, Inc. (NYSE:UFI), which was worth $34.5 million at the end of the fourth quarter. On the second spot was ValueAct Capital which amassed $25.8 million worth of shares. Moreover, Royce & Associates, Arrowstreet Capital, and Winton Capital Management were also bullish on Unifi, Inc. (NYSE:UFI), allocating a large percentage of their portfolios to this stock.
Due to the fact that Unifi, Inc. (NYSE:UFI) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds that slashed their entire stakes heading into Q3. At the top of the heap, Ken Griffin's Citadel Investment Group dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, totaling close to $1 million in stock. Jim Simons's fund, Renaissance Technologies, also dumped its stock, about $0.8 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds heading into Q3.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Unifi, Inc. (NYSE:UFI) but similarly valued. These stocks are Axonics Modulation Technologies, Inc. (NASDAQ:AXNX), Pennsylvania Real Estate Investment Trust (NYSE:PEI), eXp World Holdings, Inc. (NASDAQ:EXPI), and e.l.f. Beauty, Inc. (NYSE:ELF). This group of stocks' market valuations are similar to UFI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AXNX,10,66177,10 PEI,15,37056,1 EXPI,7,2092,2 ELF,17,77142,6 Average,12.25,45617,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $81 million in UFI's case. e.l.f. Beauty, Inc. (NYSE:ELF) is the most popular stock in this table. On the other hand eXp World Holdings, Inc. (NASDAQ:EXPI) is the least popular one with only 7 bullish hedge fund positions. Unifi, Inc. (NYSE:UFI) 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 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 UFI wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); UFI investors were disappointed as the stock returned -16.4% 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.