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Should You Be Concerned That Smart Money Is Fleeing ALLETE Inc (ALE)?

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Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: ALLETE Inc (NYSE:ALE).

Is ALLETE Inc (NYSE:ALE) worth your attention right now? Prominent investors are absolutely getting less bullish. The number of long hedge fund bets went down by 5 in recent months. 11 hedge funds that we track were long the stock on September 30, down from 16 a quarter earlier. At the end of this article we will also compare ALE to other stocks including UMB Financial Corporation (NASDAQ:UMBF), Sarepta Therapeutics Inc (NASDAQ:SRPT), and Air Lease Corp (NYSE:AL) to get a better sense of its popularity.

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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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What does the smart money think about ALLETE Inc (NYSE:ALE)?

Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 31% drop from one quarter earlier, and the second straight quarter with a decline. By comparison, 13 hedge funds held shares or bullish call options in ALE heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ALE Chart

According to Insider Monkey’s hedge fund database, Polaris Capital Management, led by Bernard Horn, holds the largest position in ALLETE Inc (NYSE:ALE). Polaris Capital Management has an $18.7 million position in the stock, comprising 1.5% of its 13F portfolio. On Polaris Capital Management’s heels is AQR Capital Management, led by Cliff Asness, holding a $10.1 million position. Remaining hedge funds and institutional investors that hold long positions consist of Chuck Royce’s Royce & Associates, Renaissance Technologies, one of the largest hedge funds in the world, and David E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

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