Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps 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. Things completely reversed during the first quarter. 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 Zagg Inc (NASDAQ:ZAGG) to find out whether it was one of their high conviction long-term ideas.
Is Zagg Inc (NASDAQ:ZAGG) a safe investment today? Money managers are turning bullish. The number of long hedge fund bets moved up by 1 recently. Our calculations also showed that ZAGG isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's go over the recent hedge fund action encompassing Zagg Inc (NASDAQ:ZAGG).
How are hedge funds trading Zagg Inc (NASDAQ:ZAGG)?
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in ZAGG a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Zagg Inc (NASDAQ:ZAGG) was held by AQR Capital Management, which reported holding $5.8 million worth of stock at the end of March. It was followed by GLG Partners with a $3 million position. Other investors bullish on the company included Renaissance Technologies, Roumell Asset Management, and Buckingham Capital Management.
As aggregate interest increased, some big names have been driving this bullishness. Buckingham Capital Management, managed by David Keidan, created the most outsized position in Zagg Inc (NASDAQ:ZAGG). Buckingham Capital Management had $1.4 million invested in the company at the end of the quarter. Roger Ibbotson's Zebra Capital Management also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new ZAGG investors: Frederick DiSanto's Ancora Advisors, Minhua Zhang's Weld Capital Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Zagg Inc (NASDAQ:ZAGG) but similarly valued. These stocks are Teekay Tankers Ltd. (NYSE:TNK), ACNB Corporation (NASDAQ:ACNB), Seneca Foods Corp (NASDAQ:SENEB), and Sutro Biopharma, Inc. (NASDAQ:STRO). This group of stocks' market values are closest to ZAGG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TNK,12,19007,1 ACNB,1,3149,-1 SENEB,2,1671,0 STRO,9,49443,0 Average,6,18318,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $17 million in ZAGG's case. Teekay Tankers Ltd. (NYSE:TNK) is the most popular stock in this table. On the other hand ACNB Corporation (NASDAQ:ACNB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Zagg Inc (NASDAQ:ZAGG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ZAGG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ZAGG were disappointed as the stock returned -22.6% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.