Following the activity of hedge funds can provide many useful insights for smaller investors, mainly because these funds invest large amounts of money, which means that they have to do a thorough research while picking stocks. On the other hand, smaller investors don’t have a lot of resources for a detailed analysis, that’s why following the activity of hedge funds, might provide an edge in beating the market. However, there is a catch. The majority of hedge funds prefer to invest in large-cap stocks, because they can provide steady returns over the long-term and have a lower risk. However, if a retail investor decides to put his money into one of these large-cap stocks, the chances are that their portfolio won’t be able to beat the market. In fact, as our backtests showed, an equity portfolio of 50 most popular stocks among over 700 hedge funds between 1999 and 2012 showed undeperformed the market by 7 basis points per month and generated an alpha of 6 basis points per month.
In this way, in order to beat the market, a good strategy good be to follow hedge funds’ moves among small-cap stocks. Our research has shown that immitating 15 most popular small-cap stocks among hedge funds outperformed the market by 1.0 percentage point per month between 1999 and 2012. Moreover, since we started sharing these 15 stocks in our newsletters in August 2012 and until March 2015, these picks provided returns of around 132% in 2.5 years, while the S&P 500 ETF (SPY) gained only 57% during the same period.
Aside from analyzing the equity portfolio of the hedge funds that we track, we also keep an eye on other filings in which these funds disclose their latest moves in equity markets. In the last couple of days, three hedge funds issued 13G filings, in which they disclosed significantly raising their stakes in four companies. Let’s take a look at each one of them.
Ken Griffin’s Citadel Investment Group reported raising its holdings in two companies: Gramercy Property Trust Inc (NYSE:GPT), and CONN’S, Inc. (NASDAQ:CONN). In Gramercy, Citadel disclosed holding 9.58 million shares, which represent 5.1% of the company’s outstanding stock. The position was increased from 5.32 million shares the fund held as of the end of 2014. In CONN’s, Citadel increased its stake to 2.34 million shares, from 1.79 million shares held earlier. This is the second increase reported by the fund this month and after adding more shares, Citadel holds 6.5% of the company’s outstanding stock.
Gramercy Property Trust Inc (NYSE:GPT) is a small-cap, self-managed real estate investment trust, whose stock gained over 32% in the last year. The company has also raised its dividend for the fourth quarter to $0.05 from $0.04 and the stock currently sports a dividend yield of 2.88%. Another shareholder of Gramercy Property Trust Inc (NYSE:GPT) among the funds that we track is Jeffrey Furber’s AEW Capital Management, which owns 8.07 million shares as of the end of the last year.