Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Exponent, Inc. (NASDAQ: EXPO ) to find out whether it was one of their high conviction long-term ideas.
Exponent, Inc. (NASDAQ: EXPO ) shareholders have witnessed an increase in hedge fund sentiment lately. EXPO was in 18 hedge funds' portfolios at the end of March. There were 16 hedge funds in our database with EXPO holdings at the end of the previous quarter. Our calculations also showed that expo isn't among the 30 most popular stocks among hedge funds .
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the recent hedge fund action surrounding Exponent, Inc. (NASDAQ: EXPO ).
How have hedgies been trading Exponent, Inc. (NASDAQ:EXPO)?
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EXPO over the last 15 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Jim Simons's Renaissance Technologies has the number one position in Exponent, Inc. (NASDAQ:EXPO), worth close to $41.7 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Royce & Associates , managed by Chuck Royce, which holds a $18.5 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish contain David Harding's Winton Capital Management , Andrew Sandler's Sandler Capital Management and Noam Gottesman's GLG Partners .
Consequently, key hedge funds have been driving this bullishness. PEAK6 Capital Management , managed by Matthew Hulsizer, established the most valuable position in Exponent, Inc. (NASDAQ:EXPO). PEAK6 Capital Management had $0.5 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $0.4 million investment in the stock during the quarter. The other funds with brand new EXPO positions are Dmitry Balyasny's Balyasny Asset Management , Michael Platt and William Reeves's BlueCrest Capital Mgmt. , and Matthew Hulsizer's PEAK6 Capital Management .
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Exponent, Inc. (NASDAQ:EXPO) but similarly valued. These stocks are CommVault Systems, Inc. (NASDAQ: CVLT ), Tenet Healthcare Corp (NYSE: THC ), Helen of Troy Limited (NASDAQ: HELE ), and Home Bancshares, Inc. (Conway, AR) (NASDAQ: HOMB ). This group of stocks' market values are similar to EXPO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVLT,29,390000,6 THC,24,916260,-11 HELE,21,175337,4 HOMB,15,29568,5 Average,22.25,377791,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $378 million. That figure was $111 million in EXPO's case. CommVault Systems, Inc. (NASDAQ: CVLT ) is the most popular stock in this table. On the other hand Home Bancshares, Inc. (Conway, AR) (NASDAQ: HOMB ) is the least popular one with only 15 bullish hedge fund positions. Exponent, Inc. (NASDAQ:EXPO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately EXPO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EXPO investors were disappointed as the stock returned -2.8% during the same time 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey .