Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Quality Systems, Inc. (NASDAQ:QSII) shareholders have witnessed an increase in enthusiasm from smart money lately. 17 hedge funds that we track were long the stock on September 30. There were 13 hedge funds in our database with QSII holdings at the end of the previous quarter. At the end of this article we will also compare QSII to other stocks including Vascular Solutions, Inc. (NASDAQ:VASC), ZIOPHARM Oncology Inc. (NASDAQ:ZIOP), and American Capital Mortgage Investment Crp (NASDAQ:MTGE) 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.
How have hedgies been trading Quality Systems, Inc. (NASDAQ:QSII)?
Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, an uptick of 8% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in QSII heading into this year, so hedge fund activity in the stock has been limited in 2016. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in Quality Systems, Inc. (NASDAQ:QSII), worth close to $8.4 million. On Citadel Investment Group’s heels is Renaissance Technologies, founded by Jim Simons, holding an $8.4 million position. Some other hedge funds and institutional investors that hold long positions encompass Israel Englander’s Millennium Management, David E. Shaw’s D E Shaw, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet 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.
With general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Millennium Management created the biggest position in Quality Systems, Inc. (NASDAQ:QSII). Millennium Management had $3.2 million invested in the company at the end of the quarter. Neil Chriss’ Hutchin Hill Capital also initiated a $0.9 million position during the quarter. The other funds with brand new QSII positions are Paul Marshall and Ian Wace’s Marshall Wace LLP and Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk’s GRT Capital Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Quality Systems, Inc. (NASDAQ:QSII) but similarly valued. These stocks are Vascular Solutions, Inc. (NASDAQ:VASC), ZIOPHARM Oncology Inc. (NASDAQ:ZIOP), American Capital Mortgage Investment Crp (NASDAQ:MTGE), and Amphastar Pharmaceuticals Inc (NASDAQ:AMPH). This group of stocks’ market valuations resemble QSII’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 9 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $32 million in QSII’s case. Vascular Solutions, Inc. (NASDAQ:VASC) is the most popular stock in this table. On the other hand ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Quality Systems, Inc. (NASDAQ:QSII) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.