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Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of The Brink's Company (NYSE:BCO) and see how the stock is affected by the recent hedge fund activity.
The Brink's Company (NYSE:BCO) investors should be aware of an increase in hedge fund interest lately. Overall hedge fund sentiment towards BCO is now at its all time high. This is usually a bullish indicator. We observed this in other stocks like Roku, Uniqure, Avalara, and Disney. Roku returned returned 45%, Uniqure and Avalara delivered a 30% gain each, and Disney outperformed the market by 23 percentage points in Q2.
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 peek at the fresh hedge fund action surrounding The Brink's Company (NYSE:BCO).
What does smart money think about The Brink's Company (NYSE:BCO)?
At Q1's end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in BCO a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.