At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Hurco Companies, Inc. (NASDAQ:HURC) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds' portfolios at the end of June. At the end of this article we will also compare HURC to other stocks including Urovant Sciences Ltd. (NASDAQ:UROV), Silicom Ltd. (NASDAQ:SILC), and SeaSpine Holdings Corporation (NASDAQ:SPNE) to get a better sense of its popularity. 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' 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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to analyze the recent hedge fund action surrounding Hurco Companies, Inc. (NASDAQ:HURC).
Hedge fund activity in Hurco Companies, Inc. (NASDAQ:HURC)
At the end of the second quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HURC over the last 16 quarters. So, let's check 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, Royce & Associates, managed by Chuck Royce, holds the most valuable position in Hurco Companies, Inc. (NASDAQ:HURC). Royce & Associates has a $32.6 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is Renaissance Technologies holding a $3.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions consist of Noam Gottesman's GLG Partners, Paul Hondros's AlphaOne Capital Partners and Israel Englander's Millennium Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Algert Coldiron Investors. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Hurco Companies, Inc. (NASDAQ:HURC) but similarly valued. These stocks are Urovant Sciences Ltd. (NASDAQ:UROV), Silicom Ltd. (NASDAQ:SILC), SeaSpine Holdings Corporation (NASDAQ:SPNE), and Commercial Vehicle Group, Inc. (NASDAQ:CVGI). This group of stocks' market values are similar to HURC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UROV,8,33755,-1 SILC,5,9207,-3 SPNE,7,15225,-1 CVGI,13,50541,-1 Average,8.25,27182,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $42 million in HURC's case. Commercial Vehicle Group, Inc. (NASDAQ:CVGI) is the most popular stock in this table. On the other hand Silicom Ltd. (NASDAQ:SILC) is the least popular one with only 5 bullish hedge fund positions. Hurco Companies, Inc. (NASDAQ:HURC) 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 HURC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HURC investors were disappointed as the stock returned -9.2% 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.