The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of A-Mark Precious Metals, Inc. (NASDAQ:AMRK) and find out how it is affected by hedge funds' moves.
A-Mark Precious Metals, Inc. (NASDAQ:AMRK) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare AMRK to other stocks including Aravive, Inc. (NASDAQ:ARAV), Abraxas Petroleum Corp. (NASDAQ:AXAS), and Aduro BioTech Inc (NASDAQ:ADRO) 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_338410" align="alignnone" width="2480"] Jeffrey Bronchick of Cove Street Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's take a glance at the key hedge fund action regarding A-Mark Precious Metals, Inc. (NASDAQ:AMRK).
What does smart money think about A-Mark Precious Metals, Inc. (NASDAQ:AMRK)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in AMRK a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Cove Street Capital was the largest shareholder of A-Mark Precious Metals, Inc. (NASDAQ:AMRK), with a stake worth $0.6 million reported as of the end of September. Trailing Cove Street Capital was Renaissance Technologies, which amassed a stake valued at $0.4 million. Cannell Capital was 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 Cannell Capital allocated the biggest weight to A-Mark Precious Metals, Inc. (NASDAQ:AMRK), around 0.09% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, dishing out 0.08 percent of its 13F equity portfolio to AMRK.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as A-Mark Precious Metals, Inc. (NASDAQ:AMRK) but similarly valued. These stocks are Aravive, Inc. (NASDAQ:ARAV), Abraxas Petroleum Corp. (NASDAQ:AXAS), Aduro BioTech Inc (NASDAQ:ADRO), and NeuBase Therapeutics, Inc. (NASDAQ:NBSE). This group of stocks' market values match AMRK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARAV,4,9718,0 AXAS,8,9618,-1 ADRO,9,6771,1 NBSE,2,8962,0 Average,5.75,8767,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $1 million in AMRK's case. Aduro BioTech Inc (NASDAQ:ADRO) is the most popular stock in this table. On the other hand NeuBase Therapeutics, Inc. (NASDAQ:NBSE) is the least popular one with only 2 bullish hedge fund positions. A-Mark Precious Metals, Inc. (NASDAQ:AMRK) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AMRK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AMRK investors were disappointed as the stock returned -21.5% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.