Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Hercules Technology Growth Capital Inc (NYSE:HTGC) a buy right now? Prominent investors are taking an optimistic view. The number of bullish hedge fund bets went up by 2 lately. Our calculations also showed that HTGC isn't among the 30 most popular stocks among hedge funds (see the video below). 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the fresh hedge fund action encompassing Hercules Technology Growth Capital Inc (NYSE:HTGC).
Hedge fund activity in Hercules Technology Growth Capital Inc (NYSE:HTGC)
At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in HTGC 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.
The largest stake in Hercules Technology Growth Capital Inc (NYSE:HTGC) was held by Millennium Management, which reported holding $9.5 million worth of stock at the end of March. It was followed by McKinley Capital Management with a $4.2 million position. Other investors bullish on the company included Citadel Investment Group, Polaris Capital Management, and D E Shaw.
As one would reasonably expect, specific money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the largest position in Hercules Technology Growth Capital Inc (NYSE:HTGC). Two Sigma Advisors had $0.9 million invested in the company at the end of the quarter. Richard Driehaus's Driehaus Capital also initiated a $0.9 million position during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser's Magnetar Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Paul Tudor Jones's Tudor Investment Corp.
Let's also examine hedge fund activity in other stocks similar to Hercules Technology Growth Capital Inc (NYSE:HTGC). These stocks are American Axle & Manufacturing Holdings, Inc. (NYSE:AXL), Corporacion America Airports SA (NYSE:CAAP), STAAR Surgical Company (NASDAQ:STAA), and LendingClub Corporation (NYSE:LC). All of these stocks' market caps are similar to HTGC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AXL,20,90342,1 CAAP,11,51854,-1 STAA,16,556099,-5 LC,10,4343,-1 Average,14.25,175660,-1.5 [/table]
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As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $25 million in HTGC's case. American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) is the most popular stock in this table. On the other hand LendingClub Corporation (NYSE:LC) is the least popular one with only 10 bullish hedge fund positions. Hercules Technology Growth Capital Inc (NYSE:HTGC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on HTGC as the stock returned 7.1% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.