Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like Boingo Wireless Inc (NASDAQ:WIFI).
Boingo Wireless Inc (NASDAQ:WIFI) has experienced a decrease in hedge fund interest recently. Our calculations also showed that WIFI 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.
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 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.
n addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's view the fresh hedge fund action regarding Boingo Wireless Inc (NASDAQ:WIFI).
What have hedge funds been doing with Boingo Wireless Inc (NASDAQ:WIFI)?
Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WIFI over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Boingo Wireless Inc (NASDAQ:WIFI), with a stake worth $52.1 million reported as of the end of March. Trailing Renaissance Technologies was Park West Asset Management, which amassed a stake valued at $12.3 million. Millennium Management, Two Sigma Advisors, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Boingo Wireless Inc (NASDAQ:WIFI) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers who were dropping their full holdings heading into Q3. At the top of the heap, Mariko Gordon's Daruma Asset Management dumped the largest position of the "upper crust" of funds followed by Insider Monkey, valued at about $24.6 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dumped its stock, about $7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Boingo Wireless Inc (NASDAQ:WIFI). We will take a look at EMC Insurance Group Inc. (NASDAQ:EMCI), Carolina Financial Corporation (NASDAQ:CARO), AxoGen, Inc. (NASDAQ:AXGN), and Extreme Networks, Inc (NASDAQ:EXTR). This group of stocks' market values are closest to WIFI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EMCI,5,16102,-1 CARO,8,51050,1 AXGN,15,97856,-4 EXTR,19,99512,-1 Average,11.75,66130,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $94 million in WIFI's case. Extreme Networks, Inc (NASDAQ:EXTR) is the most popular stock in this table. On the other hand EMC Insurance Group Inc. (NASDAQ:EMCI) is the least popular one with only 5 bullish hedge fund positions. Boingo Wireless Inc (NASDAQ:WIFI) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WIFI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WIFI were disappointed as the stock returned -38.2% during the third quarter 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.