We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Ingles Markets, Incorporated (NASDAQ:IMKTA) and determine whether hedge funds skillfully traded this stock.
Is Ingles Markets, Incorporated (NASDAQ:IMKTA) a superb investment now? Hedge funds were becoming less hopeful. The number of long hedge fund positions went down by 2 in recent months. Our calculations also showed that IMKTA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). IMKTA was in 11 hedge funds' portfolios at the end of the first quarter of 2020. There were 13 hedge funds in our database with IMKTA positions at the end of the previous quarter. Video: 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 S&P 500 ETFs by 58 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a glance at the recent hedge fund action surrounding Ingles Markets, Incorporated (NASDAQ:IMKTA).
What have hedge funds been doing with Ingles Markets, Incorporated (NASDAQ:IMKTA)?
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IMKTA over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GAMCO Investors was the largest shareholder of Ingles Markets, Incorporated (NASDAQ:IMKTA), with a stake worth $36.9 million reported as of the end of September. Trailing GAMCO Investors was Arrowstreet Capital, which amassed a stake valued at $4.5 million. AQR Capital Management, Renaissance Technologies, and PEAK6 Capital Management 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 Zebra Capital Management allocated the biggest weight to Ingles Markets, Incorporated (NASDAQ:IMKTA), around 0.68% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.44 percent of its 13F equity portfolio to IMKTA.
Due to the fact that Ingles Markets, Incorporated (NASDAQ:IMKTA) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few funds who sold off their positions entirely in the first quarter. At the top of the heap, Minhua Zhang's Weld Capital Management dropped the biggest position of the "upper crust" of funds monitored by Insider Monkey, comprising about $1 million in stock. Israel Englander's fund, Millennium Management, also dropped its stock, about $0.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds in the first quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Ingles Markets, Incorporated (NASDAQ:IMKTA) but similarly valued. We will take a look at OneSpan Inc. (NASDAQ:OSPN), Bitauto Hldg Ltd (NYSE:BITA), Azure Power Global Limited (NYSE:AZRE), and CNX Midstream Partners LP (NYSE:CNXM). This group of stocks' market caps match IMKTA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OSPN,13,63457,0 BITA,18,99076,3 AZRE,4,10039,0 CNXM,2,7681,-3 Average,9.25,45063,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $54 million in IMKTA's case. Bitauto Hldg Ltd (NYSE:BITA) is the most popular stock in this table. On the other hand CNX Midstream Partners LP (NYSE:CNXM) is the least popular one with only 2 bullish hedge fund positions. Ingles Markets, Incorporated (NASDAQ:IMKTA) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately IMKTA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on IMKTA were disappointed as the stock returned 19.6% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.