Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Safeguard Scientifics, Inc (NYSE:SFE) was in 6 hedge funds' portfolios at the end of June. SFE shareholders have witnessed an increase in support from the world's most elite money managers recently. There were 5 hedge funds in our database with SFE holdings at the end of the previous quarter. Our calculations also showed that SFE 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to review the fresh hedge fund action regarding Safeguard Scientifics, Inc (NYSE:SFE).
What does smart money think about Safeguard Scientifics, Inc (NYSE:SFE)?
At Q2's end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SFE over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Ariel Investments held the most valuable stake in Safeguard Scientifics, Inc (NYSE:SFE), which was worth $10.4 million at the end of the second quarter. On the second spot was Prescott Group Capital Management which amassed $8.7 million worth of shares. Moreover, Almitas Capital, Renaissance Technologies, and Citadel Investment Group were also bullish on Safeguard Scientifics, Inc (NYSE:SFE), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the most valuable position in Safeguard Scientifics, Inc (NYSE:SFE). Citadel Investment Group had $0.4 million invested in the company at the end of the quarter.
Let's also examine hedge fund activity in other stocks similar to Safeguard Scientifics, Inc (NYSE:SFE). We will take a look at LCNB Corp. (NASDAQ:LCNB), Northrim BanCorp, Inc. (NASDAQ:NRIM), Misonix, Inc. (NASDAQ:MSON), and Adesto Technologies Corporation (NASDAQ:IOTS). All of these stocks' market caps match SFE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LCNB,1,3741,-1 NRIM,8,24576,1 MSON,3,8475,-1 IOTS,8,40044,1 Average,5,19209,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $31 million in SFE's case. Northrim BanCorp, Inc. (NASDAQ:NRIM) is the most popular stock in this table. On the other hand LCNB Corp. (NASDAQ:LCNB) is the least popular one with only 1 bullish hedge fund positions. Safeguard Scientifics, Inc (NYSE:SFE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SFE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SFE were disappointed as the stock returned -6% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.