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Hedge Funds Aren’t Crazy About Luna Innovations Incorporated (LUNA) Anymore

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In this article you are going to find out whether hedge funds think Luna Innovations Incorporated (NASDAQ:LUNA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Luna Innovations Incorporated (NASDAQ:LUNA) was in 5 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 14. LUNA has experienced a decrease in enthusiasm from smart money lately. There were 6 hedge funds in our database with LUNA positions at the end of the fourth quarter. Our calculations also showed that LUNA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

According to most traders, hedge funds are viewed as unimportant, old financial tools of yesteryear. While there are over 8000 funds in operation at the moment, We look at the bigwigs of this group, around 850 funds. These investment experts control bulk of the hedge fund industry's total capital, and by watching their highest performing investments, Insider Monkey has deciphered a few investment strategies that have historically defeated the market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .


Cliff Asness of AQR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to check out the key hedge fund action encompassing Luna Innovations Incorporated (NASDAQ:LUNA).

Do Hedge Funds Think LUNA Is A Good Stock To Buy Now?

At first quarter's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in LUNA a year ago. 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 Luna Innovations Incorporated (NASDAQ:LUNA) was held by Royce & Associates, which reported holding $19.7 million worth of stock at the end of December. It was followed by ACK Asset Management with a $8 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and AQR Capital Management. In terms of the portfolio weights assigned to each position ACK Asset Management allocated the biggest weight to Luna Innovations Incorporated (NASDAQ:LUNA), around 3.18% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to LUNA.

Because Luna Innovations Incorporated (NASDAQ:LUNA) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds who sold off their full holdings heading into Q2. Interestingly, Ken Griffin's Citadel Investment Group dumped the biggest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $0.3 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund cut about $0.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds heading into Q2.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Luna Innovations Incorporated (NASDAQ:LUNA) but similarly valued. We will take a look at Crawford & Company (NYSE:CRD), Golden Star Resources Ltd. (NYSE:GSS), Acacia Research Corporation (NASDAQ:ACTG), LiveXLive Media, Inc. (NASDAQ:LIVX), Unity Biotechnology, Inc. (NASDAQ:UBX), Northwest Pipe Company (NASDAQ:NWPX), and BlueCity Holdings Limited (NASDAQ:BLCT). This group of stocks' market caps are similar to LUNA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRD,8,77373,0 GSS,7,17652,0 ACTG,20,33825,6 LIVX,9,15556,1 UBX,4,1586,-3 NWPX,6,41730,-4 BLCT,2,598,0 Average,8,26903,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $33 million in LUNA's case. Acacia Research Corporation (NASDAQ:ACTG) is the most popular stock in this table. On the other hand BlueCity Holdings Limited (NASDAQ:BLCT) is the least popular one with only 2 bullish hedge fund positions. Luna Innovations Incorporated (NASDAQ:LUNA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LUNA is 23. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and surpassed the market again by 6.1 percentage points. Unfortunately LUNA wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LUNA investors were disappointed as the stock returned -0.2% since the end of March (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.

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