It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Allied Motion Technologies, Inc. (NASDAQ:AMOT).
Hedge fund interest in Allied Motion Technologies, Inc. (NASDAQ:AMOT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Ashford Hospitality Trust, Inc. (NYSE:AHT), Secoo Holding Limited (NASDAQ:SECO), and Cadiz Inc (NASDAQ:CDZI) to gather more data points. Our calculations also showed that AMOT 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]
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. Let's check out the new hedge fund action encompassing Allied Motion Technologies, Inc. (NASDAQ:AMOT).
How are hedge funds trading Allied Motion Technologies, Inc. (NASDAQ:AMOT)?
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in AMOT 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, ACK Asset Management, managed by Richard S. Meisenberg, holds the most valuable position in Allied Motion Technologies, Inc. (NASDAQ:AMOT). ACK Asset Management has a $13 million position in the stock, comprising 3.7% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, with a $8.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish include Josh Goldberg's G2 Investment Partners Management, Israel Englander's Millennium Management and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position ACK Asset Management allocated the biggest weight to Allied Motion Technologies, Inc. (NASDAQ:AMOT), around 3.66% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, designating 0.86 percent of its 13F equity portfolio to AMOT.
Since Allied Motion Technologies, Inc. (NASDAQ:AMOT) has witnessed a decline in interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedgies that elected to cut their entire stakes in the third quarter. Intriguingly, David Harding's Winton Capital Management dumped the largest investment of all the hedgies watched by Insider Monkey, valued at close to $0.3 million in stock. David E. Shaw's fund, D E Shaw, also dumped its stock, about $0.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Allied Motion Technologies, Inc. (NASDAQ:AMOT). These stocks are Ashford Hospitality Trust, Inc. (NYSE:AHT), Secoo Holding Limited (NASDAQ:SECO), Cadiz Inc (NASDAQ:CDZI), and Harpoon Therapeutics, Inc. (NASDAQ:HARP). This group of stocks' market caps match AMOT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AHT,11,30043,0 SECO,4,19683,-3 CDZI,5,44191,-4 HARP,8,69242,2 Average,7,40790,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $33 million in AMOT's case. Ashford Hospitality Trust, Inc. (NYSE:AHT) is the most popular stock in this table. On the other hand Secoo Holding Limited (NASDAQ:SECO) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Allied Motion Technologies, Inc. (NASDAQ:AMOT) is more popular among hedge funds. 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. Hedge funds were also right about betting on AMOT as the stock returned 27% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.