With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Mitek Systems, Inc. (NASDAQ:MITK).
Mitek Systems, Inc. (NASDAQ:MITK) investors should be aware of a decrease in support from the world's most elite money managers of late. MITK was in 15 hedge funds' portfolios at the end of September. There were 17 hedge funds in our database with MITK holdings at the end of the previous quarter. Our calculations also showed that MITK 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.
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' 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.
[caption id="attachment_193003" align="alignnone" width="600"] 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 glance at the recent hedge fund action surrounding Mitek Systems, Inc. (NASDAQ:MITK).
Hedge fund activity in Mitek Systems, Inc. (NASDAQ:MITK)
At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in MITK a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, William C. Martin's Raging Capital Management has the number one position in Mitek Systems, Inc. (NASDAQ:MITK), worth close to $10.5 million, amounting to 1.7% of its total 13F portfolio. On Raging Capital Management's heels is Archon Capital Management, led by Constantinos J. Christofilis, holding a $9.9 million position; 2.3% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish comprise Phil Frohlich's Prescott Group Capital Management, Peter A. Wright's P.A.W. Capital Partners and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position P.A.W. Capital Partners allocated the biggest weight to Mitek Systems, Inc. (NASDAQ:MITK), around 4.81% of its 13F portfolio. Archon Capital Management is also relatively very bullish on the stock, dishing out 2.33 percent of its 13F equity portfolio to MITK.
Since Mitek Systems, Inc. (NASDAQ:MITK) has witnessed a decline in interest from the smart money, it's easy to see that there was a specific group of hedgies that decided to sell off their entire stakes in the third quarter. It's worth mentioning that Peter S. Park's Park West Asset Management dropped the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling about $10.9 million in stock, and Paul Marshall and Ian Wace's Marshall Wace was right behind this move, as the fund dropped about $3.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Mitek Systems, Inc. (NASDAQ:MITK) but similarly valued. These stocks are CalAmp Corp. (NASDAQ:CAMP), Sierra Wireless, Inc. (NASDAQ:SWIR), Regalwood Global Energy Ltd. (NYSE:RWGE), and Capital Southwest Corporation (NASDAQ:CSWC). This group of stocks' market caps match MITK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAMP,10,128434,-6 SWIR,12,63843,2 RWGE,14,128064,0 CSWC,9,40496,-1 Average,11.25,90209,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $40 million in MITK's case. Regalwood Global Energy Ltd. (NYSE:RWGE) is the most popular stock in this table. On the other hand Capital Southwest Corporation (NASDAQ:CSWC) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Mitek Systems, Inc. (NASDAQ:MITK) is more popular among hedge funds. 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 MITK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MITK were disappointed as the stock returned -26.1% 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.