Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth depends on it. Regardless of the various methods used by elite investors like David Tepper and Dan Loeb, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Despite a sharp spike in late-July, shares of Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) were down by 8% during the third quarter. That decline encouraged more support from the world’s most elite money managers in recent months. NGVC was in 7 hedge funds’ portfolios at the end of the third quarter of 2015, up from 5 hedge funds in our database with NGVC holdings at the end of the second quarter. The value of their holdings also more than doubled during the quarter, despite the shares’ decline. The increased support has yet to be rewarded, as shares have declined further in the fourth 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 Tronox Ltd (NYSE:TROX), HomeStreet Inc (NASDAQ:HMST), and First Trust High Income Long/short Fund (NYSE:FSD) to gather more data points.
According to most market participants, hedge funds are perceived as slow, outdated investment tools of the past. While there are more than an 8,000 funds trading at the moment, our researchers look at the leaders of this club, approximately 700 funds. These money managers manage the lion’s share of the smart money’s total asset base, and by keeping track of their finest investments, Insider Monkey has identified many investment strategies that have historically defeated Mr. Market. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per year for a decade in their back tests.
Now, let’s go over the key action regarding Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC).
Hedge fund activity in Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC)
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 40% rise from one quarter earlier. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or had already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the number one position in Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), worth close to $5.7 million, corresponding to less than 0.1% of its total 13F portfolio. Sitting in the #2 spot is Renaissance Technologies holding a $4.1 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism include Israel Englander’s Millennium Management, D E Shaw, and Ken Griffin’s Citadel Investment Group.
As industrywide interest jumped, key money managers were leading the bulls’ herd. D E Shaw, founded by David E. Shaw, created the most outsized position in Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC). D E Shaw had $0.7 million invested in the company at the end of the quarter. Ken Gray and Steve Walsh’s Bryn Mawr Capital also initiated a $0.5 million position during the quarter. The only other fund with a new position in the stock is Chao Ku’s Nine Chapters Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) but similarly valued. We will take a look at Tronox Ltd (NYSE:TROX), HomeStreet Inc (NASDAQ:HMST), First Trust High Income Long/short Fund (NYSE:FSD), and SunCoke Energy, Inc (NYSE:SXC). This group of stocks’ market valuations match NGVC’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 16 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $14 million in NGVC’s case. SunCoke Energy, Inc (NYSE:SXC) is the most popular stock in this table. On the other hand First Trust High Income Long/short Fund (NYSE:FSD) is the least popular one with only 6 bullish hedge fund positions. Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) 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 SXC might be a better candidate to consider a long position in.