Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Hamilton Lane Incorporated (NASDAQ:HLNE) was in 14 hedge funds' portfolios at the end of September. HLNE shareholders have witnessed an increase in enthusiasm from smart money of late. There were 6 hedge funds in our database with HLNE positions at the end of the previous quarter. Our calculations also showed that HLNE 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.
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 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.
[caption id="attachment_221556" align="aligncenter" width="450"] Richard Driehaus of Driehaus Capital[/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 look at the latest hedge fund action regarding Hamilton Lane Incorporated (NASDAQ:HLNE).
What does smart money think about Hamilton Lane Incorporated (NASDAQ:HLNE)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 133% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HLNE over the last 17 quarters. 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 Hamilton Lane Incorporated (NASDAQ:HLNE) was held by Renaissance Technologies, which reported holding $49.6 million worth of stock at the end of September. It was followed by Columbus Circle Investors with a $17.7 million position. Other investors bullish on the company included Element Capital Management, Laurion Capital Management, and Driehaus Capital. In terms of the portfolio weights assigned to each position Element Capital Management allocated the biggest weight to Hamilton Lane Incorporated (NASDAQ:HLNE), around 0.72% of its 13F portfolio. Columbus Circle Investors is also relatively very bullish on the stock, designating 0.65 percent of its 13F equity portfolio to HLNE.
Consequently, key money managers were leading the bulls' herd. Columbus Circle Investors, managed by Principal Global Investors, initiated the biggest position in Hamilton Lane Incorporated (NASDAQ:HLNE). Columbus Circle Investors had $17.7 million invested in the company at the end of the quarter. Jeffrey Talpins's Element Capital Management also initiated a $8.2 million position during the quarter. The other funds with new positions in the stock are Benjamin A. Smith's Laurion Capital Management, Richard Driehaus's Driehaus Capital, and David E. Shaw's D E Shaw.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Hamilton Lane Incorporated (NASDAQ:HLNE) but similarly valued. We will take a look at Steven Madden, Ltd. (NASDAQ:SHOO), New Fortress Energy LLC (NASDAQ:NFE), Yamana Gold Inc. (NYSE:AUY), and Medpace Holdings, Inc. (NASDAQ:MEDP). All of these stocks' market caps resemble HLNE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHOO,17,45054,3 NFE,4,30975,-1 AUY,20,223608,2 MEDP,20,177896,5 Average,15.25,119383,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $99 million in HLNE's case. Yamana Gold Inc. (NYSE:AUY) is the most popular stock in this table. On the other hand New Fortress Energy LLC (NASDAQ:NFE) is the least popular one with only 4 bullish hedge fund positions. Hamilton Lane Incorporated (NASDAQ:HLNE) 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 HLNE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HLNE investors were disappointed as the stock returned 1.8% 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.