Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a glance at the latest hedge fund action regarding Lydall, Inc. (NYSE:LDL).
How have hedgies been trading Lydall, Inc. (NYSE:LDL)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the fourth quarter of 2018. On the other hand, there were a total of 16 hedge funds with a bullish position in LDL a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lydall, Inc. (NYSE:LDL) was held by Royce & Associates, which reported holding $7.1 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $2.1 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Citadel Investment Group.
Now, key hedge funds have jumped into Lydall, Inc. (NYSE:LDL) headfirst. Millennium Management, managed by Israel Englander, assembled the most valuable position in Lydall, Inc. (NYSE:LDL). Millennium Management had $2.1 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new LDL position is Minhua Zhang's Weld Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Lydall, Inc. (NYSE:LDL) but similarly valued. We will take a look at Park-Ohio Holdings Corp. (NASDAQ:PKOH), On Deck Capital Inc (NYSE:ONDK), Magic Software Enterprises Ltd. (NASDAQ:MGIC), and Willdan Group, Inc. (NASDAQ:WLDN). All of these stocks' market caps are similar to LDL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PKOH,7,34747,1 ONDK,19,96233,-1 MGIC,2,3866,-1 WLDN,6,12381,1 Average,8.5,36807,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $17 million in LDL's case. On Deck Capital Inc (NYSE:ONDK) is the most popular stock in this table. On the other hand Magic Software Enterprises Ltd. (NASDAQ:MGIC) is the least popular one with only 2 bullish hedge fund positions. Lydall, Inc. (NYSE:LDL) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately LDL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LDL were disappointed as the stock returned -15.4% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.