Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Interface, Inc. (NASDAQ:TILE) in this article.
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.
[caption id="attachment_746830" align="aligncenter" width="473"] Matthew Hulsizer of PEAK6 Capital[/caption]
Let's take a look at the new hedge fund action surrounding Interface, Inc. (NASDAQ:TILE).
How are hedge funds trading Interface, Inc. (NASDAQ:TILE)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in TILE a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Interface, Inc. (NASDAQ:TILE) was held by Ariel Investments, which reported holding $17 million worth of stock at the end of March. It was followed by D E Shaw with a $8.8 million position. Other investors bullish on the company included Royce & Associates, Renaissance Technologies, and AQR Capital Management.
Seeing as Interface, Inc. (NASDAQ:TILE) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of funds that slashed their positions entirely last quarter. At the top of the heap, Peter Algert and Kevin Coldiron's Algert Coldiron Investors dropped the biggest investment of all the hedgies watched by Insider Monkey, worth an estimated $2.3 million in stock. Steve Cohen's fund, Point72 Asset Management, also sold off its stock, about $1.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Interface, Inc. (NASDAQ:TILE). We will take a look at Perficient, Inc. (NASDAQ:PRFT), Kforce Inc. (NASDAQ:KFRC), National Energy Services Reunited Corp. (NASDAQ:NESR), and HealthStream, Inc. (NASDAQ:HSTM). All of these stocks' market caps are similar to TILE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRFT,16,29517,2 KFRC,22,79198,1 NESR,8,34574,4 HSTM,14,49266,0 Average,15,48139,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $47 million in TILE's case. Kforce Inc. (NASDAQ:KFRC) is the most popular stock in this table. On the other hand National Energy Services Reunited Corp. (NASDAQ:NESR) is the least popular one with only 8 bullish hedge fund positions. Interface, Inc. (NASDAQ:TILE) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TILE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TILE investors were disappointed as the stock returned 2.2% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.