Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Rambus Inc. (NASDAQ:RMBS) ready to rally soon? Prominent investors are in a bullish mood. The number of bullish hedge fund positions inched up by 2 lately. Our calculations also showed that rmbs isn't among the 30 most popular stocks among hedge funds.
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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We're going to take a peek at the fresh hedge fund action encompassing Rambus Inc. (NASDAQ:RMBS).
What does the smart money think about Rambus Inc. (NASDAQ:RMBS)?
At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in RMBS 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.
More specifically, Renaissance Technologies was the largest shareholder of Rambus Inc. (NASDAQ:RMBS), with a stake worth $29 million reported as of the end of December. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $8 million. Two Sigma Advisors, Millennium Management, and PDT Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers have been driving this bullishness. Lynrock Lake, managed by Cynthia Paul, assembled the biggest position in Rambus Inc. (NASDAQ:RMBS). Lynrock Lake had $26.5 million invested in the company at the end of the quarter. George Soros's Soros Fund Management also initiated a $17.9 million position during the quarter. The following funds were also among the new RMBS investors: Michael Johnston's Steelhead Partners, Cynthia Paul's Lynrock Lake, and Ken Griffin's Citadel Investment Group.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Rambus Inc. (NASDAQ:RMBS) but similarly valued. We will take a look at New York Mortgage Trust, Inc. (NASDAQ:NYMT), NIC Inc. (NASDAQ:EGOV), InVitae Corporation (NYSE:NVTA), and California Resources Corporation (NYSE:CRC). This group of stocks' market values resemble RMBS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NYMT,9,4241,2 EGOV,18,68161,0 NVTA,24,167691,4 CRC,20,138010,-2 Average,17.75,94526,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $59 million in RMBS's case. InVitae Corporation (NYSE:NVTA) is the most popular stock in this table. On the other hand New York Mortgage Trust, Inc. (NASDAQ:NYMT) is the least popular one with only 9 bullish hedge fund positions. Rambus Inc. (NASDAQ:RMBS) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on RMBS as the stock returned 54.1% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.