Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Plexus Corp. (NASDAQ:PLXS).
Hedge fund interest in Plexus Corp. (NASDAQ:PLXS) 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 PLXS to other stocks including InVitae Corporation (NYSE:NVTA), Premier Inc (NASDAQ:PINC), and Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) 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.
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.
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. Let's view the recent hedge fund action regarding Plexus Corp. (NASDAQ:PLXS).
What have hedge funds been doing with Plexus Corp. (NASDAQ:PLXS)?
At Q3's end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PLXS over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Plexus Corp. (NASDAQ:PLXS), which was worth $43.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $8 million worth of shares. D E Shaw, Two Sigma Advisors, and Paloma Partners 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 Fisher Asset Management allocated the biggest weight to Plexus Corp. (NASDAQ:PLXS), around 0.05% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to PLXS.
Seeing as Plexus Corp. (NASDAQ:PLXS) has faced bearish sentiment from the smart money, it's safe to say that there is a sect of funds that elected to cut their full holdings heading into Q4. Interestingly, Ken Griffin's Citadel Investment Group sold off the biggest stake of the "upper crust" of funds watched by Insider Monkey, valued at about $2.9 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund cut about $0.9 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Plexus Corp. (NASDAQ:PLXS) but similarly valued. We will take a look at InVitae Corporation (NYSE:NVTA), Premier Inc (NASDAQ:PINC), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), and Callaway Golf Company (NYSE:ELY). This group of stocks' market values are similar to PLXS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVTA,13,325070,-3 PINC,17,166922,1 MDRX,19,184930,1 ELY,19,287822,-1 Average,17,241186,-0.5 [/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 $241 million. That figure was $58 million in PLXS's case. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) is the most popular stock in this table. On the other hand InVitae Corporation (NYSE:NVTA) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Plexus Corp. (NASDAQ:PLXS) is even less popular than NVTA. Hedge funds clearly dropped the ball on PLXS 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on PLXS as the stock returned 21.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.