Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. 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 Village Super Market, Inc. (NASDAQ:VLGEA).
Village Super Market, Inc. (NASDAQ:VLGEA) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds' portfolios at the end of June. At the end of this article we will also compare VLGEA to other stocks including Consolidated Communications Holdings Inc (NASDAQ:CNSL), Agenus Inc (NASDAQ:AGEN), and Telenav Inc (NASDAQ:TNAV) to get a better sense of its popularity. Our calculations also showed that VLGEA 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a 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 recent hedge fund action encompassing Village Super Market, Inc. (NASDAQ:VLGEA).
How are hedge funds trading Village Super Market, Inc. (NASDAQ:VLGEA)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in VLGEA a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Village Super Market, Inc. (NASDAQ:VLGEA) was held by Royce & Associates, which reported holding $23 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $16.2 million position. Other investors bullish on the company included GAMCO Investors, Millennium Management, and Marshall Wace LLP.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the second quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Village Super Market, Inc. (NASDAQ:VLGEA) but similarly valued. We will take a look at Consolidated Communications Holdings Inc (NASDAQ:CNSL), Agenus Inc (NASDAQ:AGEN), Telenav Inc (NASDAQ:TNAV), and MarineMax, Inc. (NYSE:HZO). This group of stocks' market valuations are closest to VLGEA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNSL,14,8843,3 AGEN,6,14030,-1 TNAV,12,90686,2 HZO,7,7939,-4 Average,9.75,30375,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $45 million in VLGEA's case. Consolidated Communications Holdings Inc (NASDAQ:CNSL) is the most popular stock in this table. On the other hand Agenus Inc (NASDAQ:AGEN) is the least popular one with only 6 bullish hedge fund positions. Village Super Market, Inc. (NASDAQ:VLGEA) 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 VLGEA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VLGEA investors were disappointed as the stock returned 0.7% 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.