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 HNI Corporation (NYSE:HNI).
Is HNI Corporation (NYSE:HNI) undervalued? The smart money is becoming less hopeful. The number of bullish hedge fund positions decreased by 4 lately. Our calculations also showed that HNI 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. Let's view the recent hedge fund action encompassing HNI Corporation (NYSE:HNI).
How are hedge funds trading HNI Corporation (NYSE:HNI)?
At Q2's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in HNI a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, D. E. Shaw's D E Shaw has the most valuable position in HNI Corporation (NYSE:HNI), worth close to $12 million, comprising less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Royce & Associates, managed by Chuck Royce, which holds a $11.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Ken Griffin's Citadel Investment Group, Cliff Asness's AQR Capital Management and David Harding's Winton Capital Management.
Judging by the fact that HNI Corporation (NYSE:HNI) has witnessed declining sentiment from the smart money, it's safe to say that there exists a select few hedgies that slashed their entire stakes last quarter. At the top of the heap, Renaissance Technologies said goodbye to the largest position of the "upper crust" of funds monitored by Insider Monkey, totaling close to $1.1 million in stock. Joel Greenblatt's fund, Gotham Asset Management, also sold off its stock, about $0.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to HNI Corporation (NYSE:HNI). We will take a look at Heartland Express, Inc. (NASDAQ:HTLD), Edgewell Personal Care Company (NYSE:EPC), Rent-A-Center Inc (NASDAQ:RCII), and Stratasys, Ltd. (NASDAQ:SSYS). This group of 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 HTLD,13,29892,-1 EPC,25,215610,6 RCII,18,415518,-3 SSYS,16,176378,2 Average,18,209350,1 [/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 $209 million. That figure was $49 million in HNI's case. Edgewell Personal Care Company (NYSE:EPC) is the most popular stock in this table. On the other hand Heartland Express, Inc. (NASDAQ:HTLD) is the least popular one with only 13 bullish hedge fund positions. HNI Corporation (NYSE:HNI) 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 HNI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HNI investors were disappointed as the stock returned 1.3% 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.