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Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Acacia Research Corporation (NASDAQ:ACTG).
Acacia Research Corporation (NASDAQ:ACTG) investors should be aware of an increase in hedge fund interest lately. Our calculations also showed that ACTG 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.
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John Rogers of Ariel Investments[/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 peek at the new hedge fund action regarding Acacia Research Corporation (NASDAQ:ACTG).
How have hedgies been trading Acacia Research Corporation (NASDAQ:ACTG)?
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACTG over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Acacia Research Corporation (NASDAQ:ACTG), with a stake worth $9.2 million reported as of the end of September. Trailing Renaissance Technologies was Ariel Investments, which amassed a stake valued at $6.5 million. Steamboat Capital Partners, Ancora Advisors, and Arrowstreet Capital 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 Steamboat Capital Partners allocated the biggest weight to Acacia Research Corporation (NASDAQ:ACTG), around 0.37% of its 13F portfolio. Elkhorn Partners is also relatively very bullish on the stock, earmarking 0.14 percent of its 13F equity portfolio to ACTG.
As industrywide interest jumped, specific money managers were leading the bulls' herd. Winton Capital Management, managed by David Harding, assembled the most valuable position in Acacia Research Corporation (NASDAQ:ACTG). Winton Capital Management had $0.4 million invested in the company at the end of the quarter. John A. Levin's Levin Capital Strategies also initiated a $0.2 million position during the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Acacia Research Corporation (NASDAQ:ACTG) but similarly valued. We will take a look at Townsquare Media Inc (NYSE:TSQ), Tyme Technologies, Inc. (NASDAQ:TYME), Orion Group Holdings, Inc. (NYSE:ORN), and Condor Hospitality Trust, Inc. (NYSE:CDOR). This group of stocks' market values resemble ACTG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSQ,5,27369,-1 TYME,6,2841,0 ORN,7,9906,1 CDOR,5,5777,3 Average,5.75,11473,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $20 million in ACTG's case. Orion Group Holdings, Inc. (NYSE:ORN) is the most popular stock in this table. On the other hand Townsquare Media Inc (NYSE:TSQ) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Acacia Research Corporation (NASDAQ:ACTG) is more popular among hedge funds. 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 ACTG as the stock returned 10.8% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.