Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 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 look at the recent hedge fund action regarding ORBCOMM Inc (NASDAQ:ORBC).
What have hedge funds been doing with ORBCOMM Inc (NASDAQ:ORBC)?
Heading into the first quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ORBC over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in ORBCOMM Inc (NASDAQ:ORBC), which was worth $64.9 million at the end of the fourth quarter. On the second spot was Ariel Investments which amassed $15.6 million worth of shares. Moreover, Impax Asset Management, Royce & Associates, and Skylands Capital were also bullish on ORBCOMM Inc (NASDAQ:ORBC), allocating a large percentage of their portfolios to this stock.
Since ORBCOMM Inc (NASDAQ:ORBC) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers who were dropping their entire stakes heading into Q3. At the top of the heap, Jim Simons's Renaissance Technologies sold off the biggest investment of all the hedgies tracked by Insider Monkey, comprising close to $3.2 million in stock, and Philip Hempleman's Ardsley Partners was right behind this move, as the fund dropped about $1.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 3 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as ORBCOMM Inc (NASDAQ:ORBC) but similarly valued. We will take a look at Great Southern Bancorp, Inc. (NASDAQ:GSBC), Yirendai Ltd. (NYSE:YRD), nLIGHT, Inc. (NASDAQ:LASR), and Photronics, Inc. (NASDAQ:PLAB). All of these stocks' market caps resemble ORBC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSBC,8,19470,-1 YRD,3,5857,-2 LASR,4,27303,-1 PLAB,16,70442,2 Average,7.75,30768,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $100 million in ORBC's case. Photronics, Inc. (NASDAQ:PLAB) is the most popular stock in this table. On the other hand Yirendai Ltd. (NYSE:YRD) is the least popular one with only 3 bullish hedge fund positions. ORBCOMM Inc (NASDAQ:ORBC) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ORBC wasn't nearly as popular as these 15 stock and hedge funds that were betting on ORBC were disappointed as the stock returned -11.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
How to Best Use Insider Monkey To Increase Your Returns
Billionaire Ken Fisher’s Top Dividend Stock Picks
30 Stocks Billionaires Are Crazy About: Insider Monkey Billionaire Stock Index