We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Saia Inc (NASDAQ:SAIA).
Saia Inc (NASDAQ:SAIA) was in 9 hedge funds' portfolios at the end of June. SAIA investors should pay attention to a decrease in hedge fund sentiment recently. There were 14 hedge funds in our database with SAIA positions at the end of the previous quarter. Our calculations also showed that SAIA 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. We're going to view the key hedge fund action regarding Saia Inc (NASDAQ:SAIA).
What have hedge funds been doing with Saia Inc (NASDAQ:SAIA)?
At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in SAIA a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Saia Inc (NASDAQ:SAIA) was held by Scopus Asset Management, which reported holding $29 million worth of stock at the end of March. It was followed by Royce & Associates with a $16.5 million position. Other investors bullish on the company included Balyasny Asset Management, Brant Point Investment Management, and GLG Partners.
Judging by the fact that Saia Inc (NASDAQ:SAIA) has faced declining sentiment from hedge fund managers, logic holds that there were a few fund managers that slashed their positions entirely by the end of the second quarter. Intriguingly, Ken Griffin's Citadel Investment Group sold off the biggest stake of the "upper crust" of funds monitored by Insider Monkey, comprising close to $2.6 million in stock. Sara Nainzadeh's fund, Centenus Global Management, also cut its stock, about $2.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 5 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks similar to Saia Inc (NASDAQ:SAIA). We will take a look at Mueller Industries, Inc. (NYSE:MLI), National Storage Affiliates Trust (NYSE:NSA), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), and Walker & Dunlop Inc. (NYSE:WD). This group of stocks' market valuations resemble SAIA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MLI,15,195723,2 NSA,18,131987,2 IRWD,21,305653,-2 WD,15,64830,1 Average,17.25,174548,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $63 million in SAIA's case. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is the most popular stock in this table. On the other hand Mueller Industries, Inc. (NYSE:MLI) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Saia Inc (NASDAQ:SAIA) is even less popular than MLI. Hedge funds clearly dropped the ball on SAIA 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 SAIA as the stock returned 44.9% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
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