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.
In CONN’S, Inc. (NASDAQ:CONN) as it has been mentioned earlier, Mr. Griffin raised its stake twice this month. Last week, the investor reported surging its stake by 1.74 million shares to 1.79 million shares representing 4.9% of the company’s stock. The stock of the consumer electronics retailer surged by 50% since the beginning of the year, amid strong sales in the last quarter of 2014, which reversed the stock’s decline in 2014, when it lost around 76%. CONN’S, Inc. (NASDAQ:CONN) still trades 11% down over the last 52 weeks, but the latest bullish moves from some funds shows some confidence around the company. Recently, Kevin Michael Ulrich and Anthony Davis’ Anchorage Advisors also reported raising its stake to 3.62 million shares from 1.37 million shares held earlier.
Next in line is Engaged Capital, which disclosed boosting its exposure to Procera Networks Inc (NASDAQ:PKT) to 1.20 million shares from 97,310 shares held previously. Following the increase, the fund led by Glenn W. Welling holds 5.8% of Procera Networks Inc (NASDAQ:PKT)’s outstanding stock. Procera is a software company that provides Intelligent Enforcement Solutions for mobile & broadband network operators that allows them to gain enhanced visibility and control of their networks. The company’s stock lost around 16% over the last 52-weeks, significantly underperforming the Software Application industry, which inched up by 0.60%. Moreover, Procera Networks Inc (NASDAQ:PKT) is targeted by an activist investor, J. Carlo Cannell of Cannell Capital, who last month nominated four directors to be elected to the company’s board. Cannell owns 311,900 shares of the company as of the end of 2014.
Finally there is Jonathan Barrett and Paul Segal’s Luminus Management, which raised its stake in Dynegy Inc. (NYSE:DYN) to 7.19 million shares, equal to 5.8% of the company’s stock, from 3.62 million shares held earlier. Dynegy is a $3.50 billion independent producer and seller of electric energy. Luminus Management is a long-term shareholder of Dynegy Inc. (NYSE:DYN), the stake being opened during the last quarter of 2012. However, as the stock gained around 41% in the following years, the investor cut its stake from 6.68 million shares held initially. Nevertheless, during the fourth quarter of 2014, Luminus doubled its stake in the company, after previously mostly reducing its exposure. Another shareholder of Dynegy Inc. (NYSE:DYN) is Howard Marks’ Oaktree Capital Management, which owns 10.15 million shares as of the end of the last year.