Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Hostess Brands, Inc. (NASDAQ:TWNK) was in 20 hedge funds' portfolios at the end of December. TWNK investors should be aware of a decrease in hedge fund interest of late. There were 24 hedge funds in our database with TWNK positions at the end of the previous quarter. Our calculations also showed that TWNK isn't among the 30 most popular stocks among hedge funds.
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' 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 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 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.
We're going to take a look at the new hedge fund action regarding Hostess Brands, Inc. (NASDAQ:TWNK).
How are hedge funds trading Hostess Brands, Inc. (NASDAQ:TWNK)?
Heading into the first quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TWNK over the last 14 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the number one position in Hostess Brands, Inc. (NASDAQ:TWNK). Cardinal Capital has a $59 million position in the stock, comprising 2.2% of its 13F portfolio. The second most bullish fund manager is Highbridge Capital Management, managed by Glenn Russell Dubin, which holds a $8.4 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish contain Robert Henry Lynch's Aristeia Capital, D. E. Shaw's D E Shaw and Ari Zweiman's 683 Capital Partners.
Because Hostess Brands, Inc. (NASDAQ:TWNK) has experienced a decline in interest from the smart money, it's safe to say that there exists a select few hedge funds who sold off their positions entirely last quarter. At the top of the heap, Adam Usdan's Trellus Management Company dumped the largest stake of all the hedgies followed by Insider Monkey, worth an estimated $0.2 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund sold off about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 4 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Hostess Brands, Inc. (NASDAQ:TWNK) but similarly valued. These stocks are Uxin Limited (NASDAQ:UXIN), Aphria Inc. (NYSE:APHA), Mobile Mini Inc (NASDAQ:MINI), and Inphi Corporation (NYSE:IPHI). This group of stocks' market caps resemble TWNK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UXIN,6,201586,1 APHA,6,4723,6 MINI,15,78021,2 IPHI,21,116576,7 Average,12,100227,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $86 million in TWNK's case. Inphi Corporation (NYSE:IPHI) is the most popular stock in this table. On the other hand Uxin Limited (NASDAQ:UXIN) is the least popular one with only 6 bullish hedge fund positions. Hostess Brands, Inc. (NASDAQ:TWNK) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on TWNK, though not to the same extent, as the stock returned 21.5% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.