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With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Luna Innovations Incorporated (NASDAQ:LUNA).
Luna Innovations Incorporated (NASDAQ:LUNA) was in 7 hedge funds' portfolios at the end of September. LUNA has experienced an increase in activity from the world's largest hedge funds of late. There were 3 hedge funds in our database with LUNA holdings at the end of the previous quarter. Our calculations also showed that LUNA 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to analyze the recent hedge fund action surrounding Luna Innovations Incorporated (NASDAQ:LUNA).
Hedge fund activity in Luna Innovations Incorporated (NASDAQ:LUNA)
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 133% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in LUNA over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Luna Innovations Incorporated (NASDAQ:LUNA), with a stake worth $8.8 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $1.3 million. Millennium Management, Arrowstreet Capital, and Algert Coldiron Investors 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 Algert Coldiron Investors allocated the biggest weight to Luna Innovations Incorporated (NASDAQ:LUNA), around 0.1% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to LUNA.
Consequently, key hedge funds have jumped into Luna Innovations Incorporated (NASDAQ:LUNA) headfirst. Millennium Management, managed by Israel Englander, established the most outsized position in Luna Innovations Incorporated (NASDAQ:LUNA). Millennium Management had $1 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron's Algert Coldiron Investors also initiated a $0.3 million position during the quarter. The other funds with brand new LUNA positions are Gavin Saitowitz and Cisco J. del Valle's Springbok Capital and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks similar to Luna Innovations Incorporated (NASDAQ:LUNA). We will take a look at Red Lion Hotels Corporation (NYSE:RLH), 1st Constitution Bancorp (NASDAQ:FCCY), Clearfield, Inc. (NASDAQ:CLFD), and Cytosorbents Corp (NASDAQ:CTSO). All of these stocks' market caps are closest to LUNA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RLH,13,48296,4 FCCY,1,2359,0 CLFD,3,7848,0 CTSO,5,4663,1 Average,5.5,15792,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $12 million in LUNA's case. Red Lion Hotels Corporation (NYSE:RLH) is the most popular stock in this table. On the other hand 1st Constitution Bancorp (NASDAQ:FCCY) is the least popular one with only 1 bullish hedge fund positions. Luna Innovations Incorporated (NASDAQ:LUNA) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on LUNA as the stock returned 27.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.