Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Ion Geophysical Corporation (NYSE:IO).
Ion Geophysical Corporation (NYSE:IO) shareholders have witnessed a decrease in hedge fund sentiment of late. Our calculations also showed that IO 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a peek at the new hedge fund action surrounding Ion Geophysical Corporation (NYSE:IO).
How have hedgies been trading Ion Geophysical Corporation (NYSE:IO)?
At Q3's end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IO over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ion Geophysical Corporation (NYSE:IO) was held by Renaissance Technologies, which reported holding $8.2 million worth of stock at the end of September. It was followed by Gates Capital Management with a $4.9 million position. Other investors bullish on the company included Royce & Associates, Two Sigma Advisors, and Millennium Management. In terms of the portfolio weights assigned to each position Gates Capital Management allocated the biggest weight to Ion Geophysical Corporation (NYSE:IO), around 0.21% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to IO.
Seeing as Ion Geophysical Corporation (NYSE:IO) has experienced a decline in interest from the smart money, logic holds that there lies a certain "tier" of money managers who were dropping their entire stakes in the third quarter. It's worth mentioning that Donald Sussman's Paloma Partners cut the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $0.4 million in stock. David Harding's fund, Winton Capital Management, also dropped its stock, about $0.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Ion Geophysical Corporation (NYSE:IO). These stocks are Kala Pharmaceuticals, Inc. (NASDAQ:KALA), Nymox Pharmaceutical Corporation (NASDAQ:NYMX), ConforMIS, Inc. (NASDAQ:CFMS), and Trinity Place Holdings Inc. (NYSE:TPHS). All of these stocks' market caps match IO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KALA,9,41580,1 NYMX,4,960,0 CFMS,8,25765,1 TPHS,12,60747,2 Average,8.25,32263,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $15 million in IO's case. Trinity Place Holdings Inc. (NYSE:TPHS) is the most popular stock in this table. On the other hand Nymox Pharmaceutical Corporation (NASDAQ:NYMX) is the least popular one with only 4 bullish hedge fund positions. Ion Geophysical Corporation (NYSE:IO) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately IO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IO investors were disappointed as the stock returned -7.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.