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In this article we will check out the progression of hedge fund sentiment towards Spark Networks SE (NYSE:LOV) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is LOV a good stock to buy now? Spark Networks SE (NYSE:LOV) was in 6 hedge funds' portfolios at the end of March. The all time high for this statistic is 9. LOV shareholders have witnessed a decrease in hedge fund sentiment in recent months. There were 9 hedge funds in our database with LOV positions at the end of the fourth quarter. Our calculations also showed that LOV isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by 115 percentage points since March 2017 (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.
Nick Thakore of Diametric Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to check out the key hedge fund action regarding Spark Networks SE (NYSE:LOV).
Do Hedge Funds Think LOV Is A Good Stock To Buy Now?
At the end of March, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in LOV over the last 23 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Osmium Partners was the largest shareholder of Spark Networks SE (NYSE:LOV), with a stake worth $26.1 million reported as of the end of March. Trailing Osmium Partners was Cannell Capital, which amassed a stake valued at $11 million. Engine Capital, Osmium Partners, and Renaissance Technologies 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 Osmium Partners allocated the biggest weight to Spark Networks SE (NYSE:LOV), around 23.95% of its 13F portfolio. Osmium Partners is also relatively very bullish on the stock, dishing out 3.77 percent of its 13F equity portfolio to LOV.
Seeing as Spark Networks SE (NYSE:LOV) has witnessed a decline in interest from the smart money, logic holds that there exists a select few money managers who were dropping their entire stakes heading into Q2. Interestingly, Matthew Hulsizer's PEAK6 Capital Management sold off the largest stake of the 750 funds followed by Insider Monkey, totaling about $5.2 million in stock, and Nick Thakore's Diametric Capital was right behind this move, as the fund cut about $0.3 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds heading into Q2.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Spark Networks SE (NYSE:LOV) but similarly valued. These stocks are Select Bancorp, Inc. (NASDAQ:SLCT), Five Star Senior Living Inc. (NYSE:FVE), American Resources Corporation (NASDAQ:AREC), The Bank of Princeton (NASDAQ:BPRN), Trecora Resources (NYSE:TREC), Second Sight Medical Products Inc (NASDAQ:EYES), and Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE). This group of stocks' market caps are closest to LOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLCT,5,11115,0 FVE,11,27833,0 AREC,3,1966,2 BPRN,2,13793,0 TREC,6,24483,0 EYES,3,15582,2 ZYNE,6,3479,0 Average,5.1,14036,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.1 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $44 million in LOV's case. Five Star Senior Living Inc. (NYSE:FVE) is the most popular stock in this table. On the other hand The Bank of Princeton (NASDAQ:BPRN) is the least popular one with only 2 bullish hedge fund positions. Spark Networks SE (NYSE:LOV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LOV is 44.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and beat the market again by 4.8 percentage points. Unfortunately LOV wasn't nearly as popular as these 5 stocks and hedge funds that were betting on LOV were disappointed as the stock returned -25.1% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.