We can judge whether HNI Corp (NYSE:HNI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
HNI Corp (NYSE:HNI) was in 16 hedge funds' portfolios at the end of the third quarter of 2019. HNI investors should pay attention to an increase in support from the world's most elite money managers recently. There were 14 hedge funds in our database with HNI holdings at the end of the previous quarter. Our calculations also showed that HNI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_193003" align="aligncenter" width="600"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the new hedge fund action encompassing HNI Corp (NYSE:HNI).
Hedge fund activity in HNI Corp (NYSE:HNI)
Heading into the fourth quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in HNI a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, David E. Shaw's D E Shaw has the most valuable position in HNI Corp (NYSE:HNI), worth close to $17.9 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $15.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Israel Englander's Millennium Management, Chuck Royce's Royce & Associates and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to HNI Corp (NYSE:HNI), around 0.67% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.1 percent of its 13F equity portfolio to HNI.
As one would reasonably expect, key money managers have been driving this bullishness. Renaissance Technologies, founded by Jim Simons, assembled the largest position in HNI Corp (NYSE:HNI). Renaissance Technologies had $1 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $0.6 million position during the quarter. The other funds with brand new HNI positions are Noam Gottesman's GLG Partners, Steve Cohen's Point72 Asset Management, and Paul Marshall and Ian Wace's Marshall Wace.
Let's now take a look at hedge fund activity in other stocks similar to HNI Corp (NYSE:HNI). These stocks are Tricida, Inc. (NASDAQ:TCDA), Magellan Health Inc (NASDAQ:MGLN), Harsco Corporation (NYSE:HSC), and Bandwidth Inc. (NASDAQ:BAND). All of these stocks' market caps match HNI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TCDA,17,702923,0 MGLN,17,284049,-2 HSC,18,181922,0 BAND,20,134079,2 Average,18,325743,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $79 million in HNI's case. Bandwidth Inc. (NASDAQ:BAND) is the most popular stock in this table. On the other hand Tricida, Inc. (NASDAQ:TCDA) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks HNI Corp (NYSE:HNI) is even less popular than TCDA. Hedge funds clearly dropped the ball on HNI as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on HNI as the stock returned 11.5% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.