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Do Hedge Funds Love Nanometrics Incorporated (NANO)?

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost around 20%. Facebook, which was the second most popular stock, lost 14% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Hedge fund interest in Nanometrics Incorporated (NASDAQ:NANO) shares was flat at the end of last quarter. This is usually a negative indicator. 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 National Presto Industries Inc. (NYSE:NPK), Solar Capital Ltd. (NASDAQ:SLRC), and Regis Corporation (NYSE:RGS) to gather more data points.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Chuck Royce

We’re going to take a look at the latest hedge fund action surrounding Nanometrics Incorporated (NASDAQ:NANO).

How are hedge funds trading Nanometrics Incorporated (NASDAQ:NANO)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, no change from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NANO over the last 13 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with NANO Positions

More specifically, Renaissance Technologies was the largest shareholder of Nanometrics Incorporated (NASDAQ:NANO), with a stake worth $34.2 million reported as of the end of September. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $23.7 million. Millennium Management, Royce & Associates, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Since Nanometrics Incorporated (NASDAQ:NANO) has experienced bearish sentiment from the smart money, we can see that there is a sect of funds who sold off their positions entirely by the end of the third quarter. At the top of the heap, J. Daniel Plants’s Voce Capital dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $2.3 million in stock. Ernest Chow and Jonathan Howe’s fund, Sensato Capital Management, also said goodbye to its stock, about $1.9 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Nanometrics Incorporated (NASDAQ:NANO). We will take a look at National Presto Industries Inc. (NYSE:NPK), Solar Capital Ltd. (NASDAQ:SLRC), Regis Corporation (NYSE:RGS), and Seacor Holdings, Inc. (NYSE:CKH). This group of stocks’ market caps are similar to NANO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NPK 10 100968 0
SLRC 11 57724 0
RGS 15 138608 1
CKH 19 149477 1
Average 13.75 111694 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $113 million in NANO’s case. Seacor Holdings, Inc. (NYSE:CKH) is the most popular stock in this table. On the other hand National Presto Industries Inc. (NYSE:NPK) is the least popular one with only 10 bullish hedge fund positions. Nanometrics Incorporated (NASDAQ:NANO) 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 CKH might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.

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