The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Innovative Solutions & Support Inc (NASDAQ:ISSC).
Innovative Solutions & Support Inc (NASDAQ:ISSC) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of March. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Central Federal Corporation (NASDAQ:CFBK), Oramed Pharmaceuticals Inc. (NASDAQ:ORMP), and Borr Drilling Limited (NYSE:BORR) to gather more data points. Our calculations also showed that ISSC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 44 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_258232" align="aligncenter" width="399"] Mario Gabelli of GAMCO Investors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the recent hedge fund action regarding Innovative Solutions & Support Inc (NASDAQ:ISSC).
What does smart money think about Innovative Solutions & Support Inc (NASDAQ:ISSC)?
Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in ISSC a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Innovative Solutions & Support Inc (NASDAQ:ISSC), which was worth $1.7 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $0.3 million worth of shares. Royce & Associates was 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 GAMCO Investors allocated the biggest weight to Innovative Solutions & Support Inc (NASDAQ:ISSC), around 0.004% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.0034 percent of its 13F equity portfolio to ISSC.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks similar to Innovative Solutions & Support Inc (NASDAQ:ISSC). These stocks are Central Federal Corporation (NASDAQ:CFBK), Oramed Pharmaceuticals Inc. (NASDAQ:ORMP), Borr Drilling Limited (NYSE:BORR), and Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN). This group of stocks' market caps resemble ISSC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFBK,1,669,0 ORMP,4,865,1 BORR,3,2880,-1 GRIN,2,3362,0 Average,2.5,1944,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.5 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $2 million in ISSC's case. Oramed Pharmaceuticals Inc. (NASDAQ:ORMP) is the most popular stock in this table. On the other hand Central Federal Corporation (NASDAQ:CFBK) is the least popular one with only 1 bullish hedge fund positions. Innovative Solutions & Support Inc (NASDAQ:ISSC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but still beat the market by 15.6 percentage points. Hedge funds were also right about betting on ISSC as the stock returned 58.6% in Q2 (through May 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.