We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Manning & Napier Inc (NYSE:MN).
Manning & Napier Inc (NYSE:MN) shareholders have witnessed an increase in enthusiasm from smart money of late. Our calculations also showed that MN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the key hedge fund action regarding Manning & Napier Inc (NYSE:MN).
How have hedgies been trading Manning & Napier Inc (NYSE:MN)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MN over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Manning & Napier Inc (NYSE:MN), with a stake worth $2.3 million reported as of the end of September. Trailing Renaissance Technologies was Mendon Capital Advisors, which amassed a stake valued at $1.6 million. Ancora Advisors, Millennium Management, 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 Mendon Capital Advisors allocated the biggest weight to Manning & Napier Inc (NYSE:MN), around 0.27% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to MN.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. ExodusPoint Capital, managed by Michael Gelband, initiated the biggest position in Manning & Napier Inc (NYSE:MN). ExodusPoint Capital had $0 million invested in the company at the end of the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Manning & Napier Inc (NYSE:MN) but similarly valued. We will take a look at Sierra Oncology, Inc. (NASDAQ:SRRA), Hornbeck Offshore Services, Inc. (NYSE:HOS), Chesapeake Granite Wash Trust (NYSE:CHKR), and Leap Therapeutics, Inc. (NASDAQ:LPTX). This group of stocks' market valuations resemble MN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SRRA,12,11329,0 HOS,13,10806,0 CHKR,2,19,0 LPTX,2,1321,0 Average,7.25,5869,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $6 million in MN's case. Hornbeck Offshore Services, Inc. (NYSE:HOS) is the most popular stock in this table. On the other hand Chesapeake Granite Wash Trust (NYSE:CHKR) is the least popular one with only 2 bullish hedge fund positions. Manning & Napier Inc (NYSE:MN) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MN were disappointed as the stock returned -8.1% during the fourth quarter (through the end of November) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.