Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Hanmi Financial Corp (NASDAQ:HAFC) investors should pay attention to an increase in hedge fund interest of late. HAFC was in 8 hedge funds’ portfolios at the end of September. There were 7 hedge funds in our database with HAFC positions at the end of the previous quarter. 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 Gamco Investors Inc. (NYSE:GBL), Crossamerica Partners LP (NYSE:CAPL), and Cardinal Financial Corporation (NASDAQ:CFNL) to gather more data points.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
Hedge fund activity in Hanmi Financial Corp (NASDAQ:HAFC)
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 14% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in HAFC heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the biggest hedge funds in the world, has the biggest position in Hanmi Financial Corp (NASDAQ:HAFC), worth close to $36.4 million. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $4.7 million position. Remaining hedge funds and institutional investors with similar optimism encompass Israel Englander’s Millennium Management, Ken Fisher’s Fisher Asset Management, and D E Shaw. 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.
As one would reasonably expect, key hedge funds were breaking ground themselves. Clinton Group, led by George Hall, assembled the biggest position in Hanmi Financial Corp (NASDAQ:HAFC). Clinton Group had $0.2 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $5,000 position during the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Hanmi Financial Corp (NASDAQ:HAFC) but similarly valued. We will take a look at Gamco Investors Inc. (NYSE:GBL), Crossamerica Partners LP (NYSE:CAPL), Cardinal Financial Corporation (NASDAQ:CFNL), and TriMas Corp (NASDAQ:TRS). This group of stocks’ market valuations are closest to HAFC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $49 million in HAFC’s case. TriMas Corp (NASDAQ:TRS) is the most popular stock in this table. On the other hand Crossamerica Partners LP (NYSE:CAPL) is the least popular one with only 5 bullish hedge fund positions. Hanmi Financial Corp (NASDAQ:HAFC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TRS might be a better candidate to consider taking a long position in.