Has the Smart Money Found A Winner in Capitol Acquisition Corp III (CLACU)?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Capitol Acquisition Corp III (NASDAQ:CLACU) shareholders have witnessed an increase in hedge fund interest in recent months. CLACU was in 13 hedge funds’ portfolios at the end of the third quarter of 2016. There were 12 hedge funds in our database with CLACU positions at the end of the previous quarter. At the end of this article we will also compare CLACU to other stocks including B. Riley Financial Inc (NASDAQ:RILY), Handy and Harman Ltd (NASDAQ:HNH), and Inotek Pharmaceuticals Corp (NASDAQ:ITEK) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What does the smart money think about Capitol Acquisition Corp III (NASDAQ:CLACU)?

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, an 8% boost from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in CLACU over the last 5 quarters, which has generally trended down since peaking at 15 following the company going public in the final quarter of 2015. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Blue Mountain Capital, led by Andrew Feldstein and Stephen Siderow, holds the largest position in Capitol Acquisition Corp III (NASDAQ:CLACU). Blue Mountain Capital has a $25.4 million position in the stock. The second most bullish fund manager is Highbridge Capital Management, led by Glenn Russell Dubin, holding a $14.8 million position. Remaining professional money managers that hold long positions contain Louis Bacon’s Moore Global Investments, Neil Chriss’ Hutchin Hill Capital, and Paul Glazer’s Glazer Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now, key hedge funds have been driving this bullishness. Governors Lane, led by Isaac Corre, established the most outsized position in Capitol Acquisition Corp III (NASDAQ:CLACU). Governors Lane had $2 million invested in the company at the end of the quarter. Andrew Weiss’s Weiss Asset Management also made a $2 million investment in the stock during the quarter. The only other fund with a brand new CLACU position is Glenn Russell Dubin’s Highbridge Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Capitol Acquisition Corp III (NASDAQ:CLACU). These stocks are B. Riley Financial Inc (NASDAQ:RILY), Handy and Harman Ltd (NASDAQ:HNH), Inotek Pharmaceuticals Corp (NASDAQ:ITEK), and Amber Road Inc (NYSE:AMBR). All of these stocks’ market caps match CLACU’s market cap.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $128 million in CLACU’s case. Inotek Pharmaceuticals Corp (NASDAQ:ITEK) is the most popular stock in this table. On the other hand Handy and Harman Ltd (NASDAQ:HNH) is the least popular one with only 3 bullish hedge fund positions. Capitol Acquisition Corp III (NASDAQ:CLACU) 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 ITEK might be a better candidate to consider taking a long position in.

Disclosure: None