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Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Aspen Aerogels Inc (NYSE:ASPN) investors should be aware of an increase in hedge fund interest recently. ASPN was in 6 hedge funds' portfolios at the end of September. There were 4 hedge funds in our database with ASPN positions at the end of the previous quarter. Our calculations also showed that ASPN 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely 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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to take a gander at the recent hedge fund action surrounding Aspen Aerogels Inc (NYSE:ASPN).
What does smart money think about Aspen Aerogels Inc (NYSE:ASPN)?
At Q3's end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ASPN over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Jeffrey Moskowitz's Harvey Partners has the largest position in Aspen Aerogels Inc (NYSE:ASPN), worth close to $5.6 million, comprising 4.1% of its total 13F portfolio. The second-largest stake is held by Royce & Associates, led by Chuck Royce, holding a $5.5 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism contain Jim Simons (founder)'s Renaissance Technologies, John W. Rogers's Ariel Investments, and Thomas Bailard's Bailard Inc. In terms of the portfolio weights assigned to each position, Harvey Partners allocated the biggest weight to Aspen Aerogels Inc (NYSE:ASPN), around 4.07% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to ASPN.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Bailard Inc, managed by Thomas Bailard, created the most valuable position in Aspen Aerogels Inc (NYSE:ASPN). Bailard Inc had $0.1 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle's Springbok Capital also initiated a $0 million position during the quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Aspen Aerogels Inc (NYSE:ASPN) but similarly valued. We will take a look at Chimerix Inc (NASDAQ:CMRX), Pangaea Logistics Solutions, Ltd. (NASDAQ:PANL), Ocular Therapeutix Inc (NASDAQ:OCUL), and Synalloy Corporation (NASDAQ:SYNL). All of these stocks' market caps resemble ASPN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMRX,11,25753,0 PANL,2,145,-1 OCUL,4,14426,-1 SYNL,4,20022,1 Average,5.25,15087,-0.25 [/table]
View the table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $17 million in ASPN's case. Chimerix Inc (NASDAQ:CMRX) is the most popular stock in this table. On the other hand, Pangaea Logistics Solutions, Ltd. (NASDAQ:PANL) is the least popular one with only 2 bullish hedge fund positions. Aspen Aerogels Inc (NYSE:ASPN) 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 ASPN as the stock returned 15% 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.