It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Twelve Seas Investment Company (NASDAQ:BROG).
Twelve Seas Investment Company (NASDAQ:BROG) investors should be aware of a decrease in support from the world's most elite money managers in recent months. BROG was in 8 hedge funds' portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with BROG holdings at the end of the previous quarter. Our calculations also showed that BROG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 take a look at the fresh hedge fund action regarding Twelve Seas Investment Company (NASDAQ:BROG).
What does smart money think about Twelve Seas Investment Company (NASDAQ:BROG)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in BROG a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Hudson Bay Capital Management held the most valuable stake in Twelve Seas Investment Company (NASDAQ:BROG), which was worth $6.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $4.4 million worth of shares. D E Shaw, BlueCrest Capital Mgmt., and Glazer Capital 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 Hudson Bay Capital Management allocated the biggest weight to Twelve Seas Investment Company (NASDAQ:BROG), around 0.17% of its 13F portfolio. Glazer Capital is also relatively very bullish on the stock, setting aside 0.13 percent of its 13F equity portfolio to BROG.
Seeing as Twelve Seas Investment Company (NASDAQ:BROG) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of money managers that slashed their full holdings in the third quarter. At the top of the heap, Andrew Weiss's Weiss Asset Management cut the largest investment of all the hedgies watched by Insider Monkey, comprising an estimated $13.4 million in stock, and Nathaniel August's Mangrove Partners was right behind this move, as the fund sold off about $3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Twelve Seas Investment Company (NASDAQ:BROG). We will take a look at Reading International, Inc. (NASDAQ:RDI), Forty Seven, Inc. (NASDAQ:FTSV), The Lovesac Company (NASDAQ:LOVE), and Enlivex Therapeutics Ltd. (NASDAQ:ENLV). This group of stocks' market values are similar to BROG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDI,7,17875,1 FTSV,9,34213,2 LOVE,12,35995,2 ENLV,1,635,0 Average,7.25,22180,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $17 million in BROG's case. The Lovesac Company (NASDAQ:LOVE) is the most popular stock in this table. On the other hand Enlivex Therapeutics Ltd. (NASDAQ:ENLV) is the least popular one with only 1 bullish hedge fund positions. Twelve Seas Investment Company (NASDAQ:BROG) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately BROG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BROG were disappointed as the stock returned 0.4% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.