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"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Vicor Corp (NASDAQ:VICR) and see how it was affected.
Vicor Corp (NASDAQ:VICR) was in 11 hedge funds' portfolios at the end of the third quarter of 2019. VICR investors should pay attention to a decrease in activity from the world's largest hedge funds of late. There were 13 hedge funds in our database with VICR holdings at the end of the previous quarter. Our calculations also showed that VICR 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.
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 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 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.
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Israel Englander of Millennium Management[/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 take a glance at the new hedge fund action regarding Vicor Corp (NASDAQ:VICR).
What does smart money think about Vicor Corp (NASDAQ:VICR)?
At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VICR over the last 17 quarters. With hedgies' capital changing hands, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Manatuck Hill Partners was the largest shareholder of Vicor Corp (NASDAQ:VICR), with a stake worth $4.4 million reported as of the end of September. Trailing Manatuck Hill Partners was Trellus Management Company, which amassed a stake valued at $3.8 million. Renaissance Technologies, AQR Capital Management, and Millennium 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 Trellus Management Company allocated the biggest weight to Vicor Corp (NASDAQ:VICR), around 3.85% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, earmarking 2.4 percent of its 13F equity portfolio to VICR.
Due to the fact that Vicor Corp (NASDAQ:VICR) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few hedge funds who were dropping their entire stakes heading into Q4. Intriguingly, Anand Parekh's Alyeska Investment Group dumped the biggest position of the 750 funds monitored by Insider Monkey, comprising close to $0.9 million in stock. Bruce Kovner's fund, Caxton Associates, also sold off its stock, about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Vicor Corp (NASDAQ:VICR) but similarly valued. These stocks are New Mountain Finance Corp. (NYSE:NMFC), Radius Health Inc (NASDAQ:RDUS), Compass Diversified Holdings LLC (NYSE:CODI), and Brookline Bancorp, Inc. (NASDAQ:BRKL). This group of stocks' market caps match VICR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NMFC,15,40701,4 RDUS,18,268579,2 CODI,5,4549,0 BRKL,11,59263,3 Average,12.25,93273,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $16 million in VICR's case. Radius Health Inc (NASDAQ:RDUS) is the most popular stock in this table. On the other hand Compass Diversified Holdings LLC (NYSE:CODI) is the least popular one with only 5 bullish hedge fund positions. Vicor Corp (NASDAQ:VICR) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on VICR as the stock returned 39.1% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.