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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards JAKKS Pacific, Inc. (NASDAQ:JAKK).
JAKKS Pacific, Inc. (NASDAQ:JAKK) was in 3 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 16. JAKK investors should pay attention to a decrease in activity from the world's largest hedge funds lately. There were 4 hedge funds in our database with JAKK positions at the end of the fourth quarter. Our calculations also showed that JAKK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the eyes of most stock holders, hedge funds are assumed to be underperforming, old investment vehicles of the past. While there are over 8000 funds in operation at present, We look at the upper echelon of this group, approximately 850 funds. These investment experts oversee bulk of the smart money's total capital, and by following their highest performing picks, Insider Monkey has revealed several investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Andrew Axelrod of Axar Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to analyze the latest hedge fund action regarding JAKKS Pacific, Inc. (NASDAQ:JAKK).
Do Hedge Funds Think JAKK Is A Good Stock To Buy Now?
At the end of March, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the fourth quarter of 2020. By comparison, 6 hedge funds held shares or bullish call options in JAKK a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in JAKKS Pacific, Inc. (NASDAQ:JAKK) was held by Renaissance Technologies, which reported holding $1.6 million worth of stock at the end of December. It was followed by Axar Capital with a $0.8 million position. The only other hedge fund that is bullish on the company was Two Sigma Advisors.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 none of the 750+ hedge funds tracked by Insider Monkey identified JAKK as a viable investment and initiated a position in the stock.
Let's also examine hedge fund activity in other stocks similar to JAKKS Pacific, Inc. (NASDAQ:JAKK). These stocks are Astrotech Corporation (NASDAQ:ASTC), HV Bancorp, Inc. (NASDAQ:HVBC), Gulf Resources, Inc. (NASDAQ:GURE), IMPAC Mortgage Holdings, Inc (NYSE:IMH), Teligent, Inc. (NASDAQ:TLGT), Helius Medical Technologies, Inc. (NASDAQ:HSDT), and Adial Pharmaceuticals, Inc (NASDAQ:ADIL). This group of stocks' market caps are closest to JAKK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASTC,2,117,-1 HVBC,1,503,-1 GURE,2,1715,1 IMH,2,430,-3 TLGT,4,4431,1 HSDT,2,2622,0 ADIL,1,180,-1 Average,2,1428,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $3 million in JAKK's case. Teligent, Inc. (NASDAQ:TLGT) is the most popular stock in this table. On the other hand HV Bancorp, Inc. (NASDAQ:HVBC) is the least popular one with only 1 bullish hedge fund positions. JAKKS Pacific, Inc. (NASDAQ:JAKK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JAKK is 43. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Hedge funds were also right about betting on JAKK as the stock returned 77.7% since the end of Q1 (through 6/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.