Apple Inc. (AAPL), Google Inc (GOOG), Ligand Pharmaceuticals Inc. (LGND): Blue Clay Capital’s Picks Destroyed Index Funds

Select Comfort Corp. (NASDAQ:SCSS) was Blue Clay Capital’s top pick this quarter, with the holding of 643,200 shares being valued at $17.39 million and representing almost 14% of its equity portfolio. Owning such a large stake in the company paid off in a big way, as the stock returned 27.53% this quarter. This was not only great news for Blue Clay, but also for Phillip Gross and Robert Atchinson’s Adage Capital Management, which owns 896,900 shares of Select Comfort Corp. (NASDAQ:SCSS)’s stock.

Ligand Pharmaceuticals Inc. (NASDAQ:LGND) had a superb first quarter, returning a whopping 44.92%, and thus performing far better than the other four stocks mentioned above. Blue Clay Capital’s stake in the company, which amounts to 41,600 shares, was valued at $2.21 million at the beginning of the year. If anything, the fund’s only regret regarding its investment in Ligand Pharmaceuticals Inc. (NASDAQ:LGND) was not acquiring an even larger position. Among the hedge funds we track, David M. Knott’s Dorset Management ranks as the company’s largest shareholder with a stake of 1.25 million shares.

Tracking the activity of hedge funds is a great way to discover investment opportunities for any investor seeking to beat the market. However, rather than betting on their large-cap picks, which tend to be more efficiently priced and thus offer smaller returns, a better approach is to focus on their positions in small-cap stocks. According to our research, the 15 most popular small-cap stocks among hedge funds outperformed the market by 1 percentage point per month between June 1999 and August 2012. As such, we devised a small-cap strategy and launched it at the end of August 2012 and it has returned more 132% over the past 2.5 years, beating the S&P 500 ETF (SPY) by over 80 percentage points.

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