The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Hubbell Incorporated (NYSE:HUBB) and find out how it is affected by hedge funds' moves.
Hubbell Incorporated (NYSE:HUBB) has experienced a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that HUBB isn't among the 30 most popular stocks among hedge funds (view the video below). 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 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 take a look at the fresh hedge fund action surrounding Hubbell Incorporated (NYSE:HUBB).
What does smart money think about Hubbell Incorporated (NYSE:HUBB)?
At Q2's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in HUBB a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Hubbell Incorporated (NYSE:HUBB) was held by Royce & Associates, which reported holding $104.2 million worth of stock at the end of March. It was followed by Impax Asset Management with a $87.8 million position. Other investors bullish on the company included Arrowstreet Capital, Carlson Capital, and Renaissance Technologies.
Since Hubbell Incorporated (NYSE:HUBB) has faced falling interest from hedge fund managers, it's safe to say that there were a few fund managers that elected to cut their entire stakes by the end of the second quarter. Interestingly, Robert Polak's Anchor Bolt Capital dropped the largest stake of the "upper crust" of funds tracked by Insider Monkey, totaling close to $10.6 million in stock, and Gregg Moskowitz's Interval Partners was right behind this move, as the fund dropped about $8.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 3 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks similar to Hubbell Incorporated (NYSE:HUBB). These stocks are Woodward Inc (NASDAQ:WWD), bluebird bio Inc (NASDAQ:BLUE), First Solar, Inc. (NASDAQ:FSLR), and PVH Corp (NYSE:PVH). All of these stocks' market caps match HUBB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WWD,28,353160,8 BLUE,22,155991,-3 FSLR,24,372192,1 PVH,32,1066193,1 Average,26.5,486884,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $487 million. That figure was $345 million in HUBB's case. PVH Corp (NYSE:PVH) is the most popular stock in this table. On the other hand bluebird bio Inc (NASDAQ:BLUE) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Hubbell Incorporated (NYSE:HUBB) is even less popular than BLUE. Hedge funds dodged a bullet by taking a bearish stance towards HUBB. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HUBB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HUBB investors were disappointed as the stock returned 1.4% 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.
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