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Were Hedge Funds Right About Warming Up To SPX Corporation (SPXC)?

Nina Todic

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 37.4% compared to 27.5%, 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.

SPX Corporation (NYSE:SPXC) investors should be aware of an increase in enthusiasm from smart money in recent months. SPXC was in 18 hedge funds' portfolios at the end of September. There were 16 hedge funds in our database with SPXC holdings at the end of the previous quarter. Our calculations also showed that SPXC 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.

5 Most Popular Stocks Among Hedge Funds

To most stock holders, hedge funds are seen as slow, old financial tools of yesteryear. While there are more than 8000 funds in operation at present, Our experts hone in on the bigwigs of this club, approximately 750 funds. It is estimated that this group of investors direct the lion's share of all hedge funds' total capital, and by keeping an eye on their matchless picks, Insider Monkey has discovered several investment strategies that have historically outrun the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]

David E. Shaw of D.E. Shaw

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. We're going to take a peek at the latest hedge fund action encompassing SPX Corporation (NYSE:SPXC).

How are hedge funds trading SPX Corporation (NYSE:SPXC)?

At Q3's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the second quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in SPXC a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in SPX Corporation (NYSE:SPXC) was held by Selz Capital, which reported holding $28.7 million worth of stock at the end of September. It was followed by Corsair Capital Management with a $19.8 million position. Other investors bullish on the company included Ancora Advisors, D E Shaw, and Interval Partners. In terms of the portfolio weights assigned to each position Selz Capital allocated the biggest weight to SPX Corporation (NYSE:SPXC), around 7.22% of its 13F portfolio. Corsair Capital Management is also relatively very bullish on the stock, dishing out 6.09 percent of its 13F equity portfolio to SPXC.

As industrywide interest jumped, key money managers have jumped into SPX Corporation (NYSE:SPXC) headfirst. Driehaus Capital, managed by Richard Driehaus, created the biggest position in SPX Corporation (NYSE:SPXC). Driehaus Capital had $2 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new SPXC investors: Donald Sussman's Paloma Partners and Steve Cohen's Point72 Asset Management.

Let's also examine hedge fund activity in other stocks similar to SPX Corporation (NYSE:SPXC). We will take a look at Noah Holdings Limited (NYSE:NOAH), Resideo Technologies, Inc. (NYSE:REZI), NetScout Systems, Inc. (NASDAQ:NTCT), and Essential Properties Realty Trust, Inc. (NYSE:EPRT). This group of stocks' market caps are closest to SPXC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOAH,19,219107,7 REZI,31,340130,2 NTCT,12,100240,-2 EPRT,15,110452,0 Average,19.25,192482,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $77 million in SPXC's case. Resideo Technologies, Inc. (NYSE:REZI) is the most popular stock in this table. On the other hand NetScout Systems, Inc. (NASDAQ:NTCT) is the least popular one with only 12 bullish hedge fund positions. SPX Corporation (NYSE:SPXC) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on SPXC as the stock returned 19.4% during the first two months of Q4 and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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