Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is HEXO Corp. (NYSE:HEXO), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is HEXO Corp. (NYSE:HEXO) ready to rally soon? The smart money was in a bearish mood. The number of long hedge fund bets were cut by 1 lately. HEXO Corp. (NYSE:HEXO) was in 4 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 10. Our calculations also showed that HEXO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 5 hedge funds in our database with HEXO positions at the end of the second quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.
Joel Greenblatt of Gotham Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let's review the latest hedge fund action regarding HEXO Corp. (NYSE:HEXO).
How have hedgies been trading HEXO Corp. (NYSE:HEXO)?
At Q3's end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in HEXO a year ago. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Renaissance Technologies has the biggest position in HEXO Corp. (NYSE:HEXO), worth close to $0.3 million, amounting to less than 0.1%% of its total 13F portfolio. On Renaissance Technologies's heels is Ken Griffin of Citadel Investment Group, with a $0.3 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism comprise Matthew Hulsizer's PEAK6 Capital Management, Joel Greenblatt's Gotham Asset Management and Daniel S. Och's OZ Management. In terms of the portfolio weights assigned to each position Gotham Asset Management allocated the biggest weight to HEXO Corp. (NYSE:HEXO), around 0.0007% of its 13F portfolio. PEAK6 Capital Management is also relatively very bullish on the stock, setting aside 0.0005 percent of its 13F equity portfolio to HEXO.
Since HEXO Corp. (NYSE:HEXO) has faced a decline in interest from the smart money, it's easy to see that there lies a certain "tier" of hedge funds that decided to sell off their entire stakes in the third quarter. It's worth mentioning that Donald Sussman's Paloma Partners dumped the biggest investment of the 750 funds watched by Insider Monkey, worth close to $0.1 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund dumped about $0 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as HEXO Corp. (NYSE:HEXO) but similarly valued. These stocks are Aeglea BioTherapeutics, Inc. (NASDAQ:AGLE), Capital City Bank Group, Inc. (NASDAQ:CCBG), Qudian Inc. (NYSE:QD), Great Panther Mining Ltd (NYSE:GPL), The Container Store Group Inc (NYSE:TCS), Source Capital, Inc. (NYSE:SOR), and Akoustis Technologies, Inc. (NASDAQ:AKTS). This group of stocks' market values match HEXO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGLE,22,147695,3 CCBG,6,6349,3 QD,6,8739,-2 GPL,5,4961,1 TCS,14,181766,5 SOR,2,31699,-2 AKTS,6,12834,0 Average,8.7,56292,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.7 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $0 million in HEXO's case. Aeglea BioTherapeutics, Inc. (NASDAQ:AGLE) is the most popular stock in this table. On the other hand Source Capital, Inc. (NYSE:SOR) is the least popular one with only 2 bullish hedge fund positions. HEXO Corp. (NYSE:HEXO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HEXO is 21. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on HEXO as the stock returned 31.3% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
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