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Interface, Inc. (TILE): Hedge Funds Cashing Out

Asma UL Husna

In this article we will take a look at whether hedge funds think Interface, Inc. (NASDAQ:TILE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Interface, Inc. (NASDAQ:TILE) a buy here? The smart money is turning less bullish. The number of long hedge fund positions dropped by 5 recently. Our calculations also showed that TILE isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). TILE was in 15 hedge funds' portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with TILE positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_193003" align="aligncenter" width="392"] Chuck Royce of Royce & Associates[/caption]

Chuck Royce

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the key hedge fund action surrounding Interface, Inc. (NASDAQ:TILE).

How have hedgies been trading Interface, Inc. (NASDAQ:TILE)?

Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the fourth quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in TILE a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Akaris Global Partners was the largest shareholder of Interface, Inc. (NASDAQ:TILE), with a stake worth $5.5 million reported as of the end of September. Trailing Akaris Global Partners was D E Shaw, which amassed a stake valued at $2.9 million. Citadel Investment Group, Renaissance Technologies, and Royce & Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Akaris Global Partners allocated the biggest weight to Interface, Inc. (NASDAQ:TILE), around 2.69% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.54 percent of its 13F equity portfolio to TILE.

Since Interface, Inc. (NASDAQ:TILE) has experienced falling interest from hedge fund managers, it's easy to see that there exists a select few funds that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, John W. Rogers's Ariel Investments dropped the largest position of the "upper crust" of funds watched by Insider Monkey, worth close to $18 million in stock. Israel Englander's fund, Millennium Management, also sold off its stock, about $0.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds by the end of the first quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Interface, Inc. (NASDAQ:TILE) but similarly valued. We will take a look at Donegal Group Inc (NASDAQ:DGICA), Mobileiron Inc (NASDAQ:MOBL), Arch Resources, Inc. (NYSE:ARCH), and CrossFirst Bankshares, Inc. (NASDAQ:CFB). This group of stocks' market valuations resemble TILE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DGICA,5,10086,0 MOBL,15,110592,-3 ARCH,24,88620,-2 CFB,6,8848,0 Average,12.5,54537,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $18 million in TILE's case. Arch Resources, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand Donegal Group Inc (NASDAQ:DGICA) is the least popular one with only 5 bullish hedge fund positions. Interface, Inc. (NASDAQ:TILE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately TILE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TILE were disappointed as the stock returned 0.5% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.

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