Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Hedge fund interest in Town Sports International Holdings, Inc. (NASDAQ:CLUB) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as UTStarcom Holdings Corp (NASDAQ:UTSI), Ur-Energy Inc. (NYSE:URG), and Quarterhill Inc. (NASDAQ:QTRH) to gather more data points.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's go over the new hedge fund action surrounding Town Sports International Holdings, Inc. (NASDAQ:CLUB).
How have hedgies been trading Town Sports International Holdings, Inc. (NASDAQ:CLUB)?
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CLUB over the last 15 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, HG Vora Capital Management was the largest shareholder of Town Sports International Holdings, Inc. (NASDAQ:CLUB), with a stake worth $40.5 million reported as of the end of March. Trailing HG Vora Capital Management was Stadium Capital Management, which amassed a stake valued at $12.9 million. Renaissance Technologies, AQR Capital Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Town Sports International Holdings, Inc. (NASDAQ:CLUB) has faced falling interest from the entirety of the hedge funds we track, it's safe to say that there were a few money managers that decided to sell off their positions entirely last quarter. Intriguingly, Matthew Hulsizer's PEAK6 Capital Management sold off the largest stake of the "upper crust" of funds tracked by Insider Monkey, comprising close to $0.2 million in stock. Ken Griffin's fund, Citadel Investment Group, also dropped its stock, about $0.1 million worth. These bearish behaviors are interesting, 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 Town Sports International Holdings, Inc. (NASDAQ:CLUB) but similarly valued. We will take a look at UTStarcom Holdings Corp (NASDAQ:UTSI), Ur-Energy Inc. (NYSE:URG), Quarterhill Inc. (NASDAQ:QTRH), and Unum Therapeutics Inc. (NASDAQ:UMRX). This group of stocks' market valuations resemble CLUB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UTSI,2,33752,0 URG,4,6110,0 QTRH,3,2799,0 UMRX,6,9723,0 Average,3.75,13096,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $66 million in CLUB's case. Unum Therapeutics Inc. (NASDAQ:UMRX) is the most popular stock in this table. On the other hand UTStarcom Holdings Corp (NASDAQ:UTSI) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Town Sports International Holdings, Inc. (NASDAQ:CLUB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CLUB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CLUB were disappointed as the stock returned -50.4% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.