It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. 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 Meta Financial Group Inc. (NASDAQ:CASH).
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to check out the fresh hedge fund action surrounding Meta Financial Group Inc. (NASDAQ:CASH).
How have hedgies been trading Meta Financial Group Inc. (NASDAQ:CASH)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in CASH 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 upping their stakes considerably (or already accumulated large positions).
Among these funds, Nantahala Capital Management held the most valuable stake in Meta Financial Group Inc. (NASDAQ:CASH), which was worth $35.4 million at the end of the first quarter. On the second spot was Steamboat Capital Partners which amassed $16.7 million worth of shares. Moreover, Second Curve Capital, Hawk Ridge Management, and Millennium Management were also bullish on Meta Financial Group Inc. (NASDAQ:CASH), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Meta Financial Group Inc. (NASDAQ:CASH) has faced a decline in interest from hedge fund managers, we can see that there is a sect of money managers who sold off their full holdings in the third quarter. It's worth mentioning that Joseph A. Jolson's Harvest Capital Strategies said goodbye to the biggest stake of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $7.3 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund sold off about $2.4 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Meta Financial Group Inc. (NASDAQ:CASH) but similarly valued. We will take a look at Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), Cellectis SA (NASDAQ:CLLS), OneSpan Inc. (NASDAQ:OSPN), and Intellia Therapeutics, Inc. (NASDAQ:NTLA). This group of stocks' market caps resemble CASH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SOI,16,102118,1 CLLS,8,32826,0 OSPN,13,71319,1 NTLA,10,16843,0 Average,11.75,55777,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $82 million in CASH's case. Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) is the most popular stock in this table. On the other hand Cellectis SA (NASDAQ:CLLS) is the least popular one with only 8 bullish hedge fund positions. Meta Financial Group Inc. (NASDAQ:CASH) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on CASH as the stock returned 42.8% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.