Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Allot Communications Ltd. (NASDAQ:ALLT).
Allot Communications Ltd. (NASDAQ:ALLT) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. ALLT was in 7 hedge funds’ portfolios at the end of the third quarter of 2016. There were 8 hedge funds in our database with ALLT positions at the end of the second quarter. At the end of this article we will also compare ALLT to other stocks including Northrim BanCorp, Inc. (NASDAQ:NRIM), Owens Realty Mortgage Inc (NYSEMKT:ORM), and Rightside Group Ltd (NASDAQ:NAME) to get a better sense of its popularity.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
How are hedge funds trading Allot Communications Ltd. (NASDAQ:ALLT)?
At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a 13% drop from the previous quarter, and the third-straight quarter with a decline in the number of bullish hedge fund positions in the stock. The graph below displays the number of hedge funds with bullish positions in ALLT over the last 5 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Soros Fund Management, led by George Soros, holds the biggest position in Allot Communications Ltd. (NASDAQ:ALLT). Soros Fund Management has a $12.7 million position in the stock. Coming in second is P.A.W. CAPITAL PARTNERS, led by Peter A. Wright, holding a $5.3 million position; 5.7% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish consist of Renaissance Technologies, one of the largest hedge funds in the world, David E. Shaw’s D E Shaw, and Richard Mashaal’s RIMA Senvest Management. We should note that Soros Fund Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-micro-cap stocks.