Quantitative hedge funds have been on an absolute tear over the past few months, posting gains in 15 of the past 17 weeks according to data compiled by Societe Generale. Quant funds, which include some of the biggest hedge funds in the world, use algorithms to instantly trade stocks based on any number of preset conditions, such as the stock’s moving average or other technical indicators. As volatility rises, these funds tend to perform better, as more trading opportunities arise, and that’s been the case during this volatile early stretch in 2018.
In this article, we’re going to look at the collective trading patterns of three of the most successful quant hedge funds in the world: David Harding‘s Winton Capital, Jim Simons‘ Renaissance Technologies, and John Overdeck and David Siegel’s Two Sigma Advisors. All three funds have filed their 13Fs for the December quarter, revealing their stock positions as of the end of 2017, and at least two of them opened positions in each of the three small-cap stocks profiled in this article. Is it time to piggyback billionaire quants into these stocks? Let’s take a look at them and see.
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Sleep Number Corp (NASDAQ:SNBR)
New Positions: Winton Capital (168,349 shares), Renaissance Technologies (59,820 shares)
Existing Position: Two Sigma Advisors (+8,200 shares, 171,200 shares total)
About Sleep Number Corp (NASDAQ:SNBR): Previously known as Select Comfort, Sleep Number changed its name last November to align itself with its well-known brand of adjustable mattresses, which use a number system to denote the level of support that is being provided by the mattress. This number, and the accompanying firmness of the mattress, can be adjusted at any time. Many of the company’s mattresses also feature DualAir technology, which allows each side of the bed to be adjusted separately to fit the different needs of a bed’s occupants.
How the Steinhoff Scandal May Affect Sleep Number Corp (NASDAQ:SNBR): South African furniture giant Steinhoff has been embroiled in an accounting scandal over the past two months, one that lead to the resignation of the company’s CEO. Analysts believe the upheaval at the company, which has since made several moves to try and improve its liquidity, will only benefit Sleep Number and rival Tempur Sealy International Inc (NYSE:TPX).
Sleep Number Corp (NASDAQ:SNBR) at CES 2018: At last month’s CES 2018, a prominent annual tech gathering, Sleep Number showed off its Sleep Number 360 smart bed, which can detect everything from cases of sleep apnea to impending heart attacks through its tracking of hundreds of different measurements in real-time. Users can then review their sleep data in the morning, including seeing how restful their sleep was and their breathing rate. The bed became available last May.
On the next page we’ll look at two more small-cap stocks that billionaire quants piled on in Q4.
Ciena Corporation (NYSE:CIEN)
New Positions: Renaissance Technologies (1.92 million shares), Two Sigma Advisors (24,455 shares), Winton Capital (270,765 shares)
About Ciena Corporation (NYSE:CIEN): Ciena provides network products and services for the telecommunications industry, governments, and businesses. Its Wavelogic Ai allows for autonomous running of optical networks, while its Liquid Spectrum allows clients to monitor and optimize their network performance through advanced new software tools.
Analysts Like Ciena Corporation (NYSE:CIEN): Goldman Sachs recently upgraded Ciena to ‘Buy’ from ‘Neutral’, citing strength in U.S carrier capital spending thanks to a more competitive environment. The bank’s $27 price target on Ciena shares is 15% higher than their current price. In a report last year, Jefferies expressed confidence in Ciena’s sales growth for 2018, suggesting that management’s 5% revenue growth target was conservative.
Will Ciena Corporation (NYSE:CIEN) Be Acquired?: There has been some strength in Ciena’s shares in recent days, which has been attributed to renewed speculation that the company could be acquired. Ciena has been the subject of takeover rumors for years, with Ericsson having been mentioned as a potential suitor in the past.
Ciena Corporation (NYSE:CIEN) Enjoying Strong Growth in India, China: Ciena’s international revenue jumped to $326.2 million in the fourth-quarter, up by nearly $50 million year-over-year. That helped offset declining U.S revenue, which fell by nearly $19 million during the same period. Most of that international growth was in the Asia Pacific region, which now accounts for 20.1% of Ciena’s revenue.
Primerica, Inc. (NYSE:PRI)
New Positions: Winton Capital (58,806 shares), Renaissance Technologies (56,250 shares)
Closed Position: Two Sigma Advisors (-10,900 shares)
About Primerica, Inc. (NYSE:PRI): Primerica is an MLM company, a revelation which tends to illicit surprised reactions as minds conjure up images of vile pyramid schemes, the bane of all humanity. The company claims only that it’s a financial services company, though admittedly one which rewards recruiters with a cut of the sales made by recruitees. Regardless of where you stand on the debate, Primerica has quietly gone about its business, gaining over 400% since its IPO in 2010.
Why Buy Primerica, Inc. (NYSE:PRI)? Primerica is coming off a strong fourth quarter, with adjusted operating revenue rising to $442 million, up by 13% year-over-year, while adjusted operating income jumped by 25%. The company plans to repurchase around $200 million worth of shares this year and raised its dividend by 25%, pushing its yield to just above 1%. The company’s “Life Insurance Licensed Sales Force” had grown to 126,121-strong as of the end of 2017, up by 8% from a year earlier.
Why Sell Primerica, Inc. (NYSE:PRI)?: In this case, one of the three quants, Two Sigma, went against its fellow quants and unloaded a small position in the stock during the fourth quarter. Despite Herbalife Ltd. (NYSE:HLF) getting the bulk of the bad press thanks to billionaire Bill Ackman‘s crusade against the company, Primerica may not be as safe from future regulatory scrutiny as it may currently appear. That could be bad news should the FTC’s eyes fall upon them, as Herbalife was forced into a settlement and had to change the way that it marketed itself.
Hedge Fund Ownership of Primerica, Inc. (NYSE:PRI): As of September 30, 18 hedge funds in our database were long Primerica, owning a collective $288 million in shares. In addition to Winton and Renaissance, two other hedge funds in our system also opened positions in Primerica in the fourth-quarter, being Steve Cohen‘s Point72 Asset Management and Matthew Tewksbury’s Stevens Capital Management.