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 follow the hedge fund activity in the small-cap space.
Is Shopify Inc (NYSE:SHOP) a great investment today? The best stock pickers are turning bullish. The number of bullish hedge fund bets inched up by 7 lately. SHOP was in 31 hedge funds’ portfolios at the end of the third quarter of 2016. There were 24 hedge funds in our database with SHOP positions at the end of the previous quarter. 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 Hilltop Holdings Inc. (NYSE:HTH), INC Research Holdings Inc (NASDAQ:INCR), and Northstar Realty Finance Corp. (NYSE:NRF) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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How have hedgies been trading Shopify Inc (NYSE:SHOP)?
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 29% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Abdiel Capital Advisors, managed by Colin Moran, holds the number one position in Shopify Inc (NYSE:SHOP). Abdiel Capital Advisors has a $109.8 million position in the stock, comprising 32.3% of its 13F portfolio. The second largest stake is held by Light Street Capital, led by Glen Kacher, holding a $63.5 million position; 6.4% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism comprise Alex Sacerdote’s Whale Rock Capital Management, Jim Simons’ Renaissance Technologies and Ken Griffin’s Citadel Investment Group.
Now, some big names were leading the bulls’ herd. Citadel Investment Group, initiated the biggest position in Shopify Inc (NYSE:SHOP). Citadel Investment Group had $29.5 million invested in the company at the end of the quarter. Adam Wolfberg and Steven Landry’s EastBay Asset Management also made an $18.8 million investment in the stock during the quarter. The other funds with new positions in the stock are James Crichton’s Hitchwood Capital Management, Principal Global Investors’ Columbus Circle Investors, and Christopher Lyle’s SCGE Management.
Let’s now take a look at hedge fund activity in other stocks similar to Shopify Inc (NYSE:SHOP). We will take a look at Hilltop Holdings Inc. (NYSE:HTH), INC Research Holdings Inc (NASDAQ:INCR), Northstar Realty Finance Corp. (NYSE:NRF), and Boyd Gaming Corporation (NYSE:BYD). All of these stocks’ market caps resemble SHOP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTH | 15 | 34838 | 1 |
| INCR | 30 | 367630 | 5 |
| NRF | 32 | 315398 | 0 |
| BYD | 23 | 667524 | -4 |
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $346 million. That figure was $450 million in SHOP’s case. Northstar Realty Finance Corp. (NYSE:NRF) is the most popular stock in this table. On the other hand Hilltop Holdings Inc. (NYSE:HTH) is the least popular one with only 15 bullish hedge fund positions. Shopify Inc (NYSE:SHOP) 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. In this regard NRF might be a better candidate to consider a long position.
Disclosure: None
