The financial regulations require hedge funds and wealthy investors that crossed the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on June 28th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded PC Connection, Inc. (NASDAQ:CNXN) based on those filings.
Hedge fund interest in PC Connection, Inc. (NASDAQ:CNXN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CNXN to other stocks including GMS Inc. (NYSE:GMS), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), and WAVE Life Sciences Ltd. (NASDAQ:WVE) to get a better sense of its popularity. Our calculations also showed that CNXN isn't among the 30 most popular stocks among hedge funds (see the video below). 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 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 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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the recent hedge fund action encompassing PC Connection, Inc. (NASDAQ:CNXN).
What have hedge funds been doing with PC Connection, Inc. (NASDAQ:CNXN)?
At Q2's end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CNXN over the last 16 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in PC Connection, Inc. (NASDAQ:CNXN) was held by Royce & Associates, which reported holding $27.6 million worth of stock at the end of March. It was followed by AQR Capital Management with a $8.5 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and Winton Capital Management.
Due to the fact that PC Connection, Inc. (NASDAQ:CNXN) has witnessed falling interest from the smart money, we can see that there were a few hedgies that decided to sell off their full holdings by the end of the second quarter. Intriguingly, D. E. Shaw's D E Shaw sold off the largest stake of the "upper crust" of funds followed by Insider Monkey, valued at about $0.3 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also sold off its stock, about $0 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as PC Connection, Inc. (NASDAQ:CNXN) but similarly valued. We will take a look at GMS Inc. (NYSE:GMS), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), WAVE Life Sciences Ltd. (NASDAQ:WVE), and Kforce Inc. (NASDAQ:KFRC). This group of stocks' market caps resemble CNXN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GMS,20,80650,0 JBSS,10,95065,-1 WVE,20,339098,-4 KFRC,18,79522,-4 Average,17,148584,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $38 million in CNXN's case. GMS Inc. (NYSE:GMS) is the most popular stock in this table. On the other hand John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks PC Connection, Inc. (NASDAQ:CNXN) is even less popular than JBSS. Hedge funds clearly dropped the ball on CNXN as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CNXN as the stock returned 11.2% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.