It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like American Superconductor Corporation (NASDAQ:AMSC).
Is American Superconductor Corporation (NASDAQ:AMSC) an exceptional investment right now? The smart money is taking a bullish view. The number of long hedge fund bets rose by 9 lately. Our calculations also showed that amsc isn’t among the 30 most popular stocks among hedge funds. AMSC was in 16 hedge funds’ portfolios at the end of March. There were 7 hedge funds in our database with AMSC positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to check out the latest hedge fund action encompassing American Superconductor Corporation (NASDAQ:AMSC).
What does smart money think about American Superconductor Corporation (NASDAQ:AMSC)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 129% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AMSC over the last 15 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of American Superconductor Corporation (NASDAQ:AMSC), with a stake worth $9.6 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $8.6 million. D E Shaw, GMT Capital, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key money managers have been driving this bullishness. GMT Capital, managed by Thomas E. Claugus, assembled the biggest position in American Superconductor Corporation (NASDAQ:AMSC). GMT Capital had $6.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $3 million position during the quarter. The other funds with brand new AMSC positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as American Superconductor Corporation (NASDAQ:AMSC) but similarly valued. We will take a look at Solar Senior Capital Ltd (NASDAQ:SUNS), Protective Insurance Corporation (NASDAQ:PTVCB), Neuronetics, Inc. (NASDAQ:STIM), and AcelRx Pharmaceuticals Inc (NASDAQ:ACRX). This group of stocks’ market caps are similar to AMSC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SUNS | 2 | 851 | 1 |
| PTVCB | 7 | 27866 | 1 |
| STIM | 2 | 2767 | -4 |
| ACRX | 11 | 9790 | 2 |
| Average | 5.5 | 10319 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $47 million in AMSC’s case. AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) is the most popular stock in this table. On the other hand Solar Senior Capital Ltd (NASDAQ:SUNS) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks American Superconductor Corporation (NASDAQ:AMSC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AMSC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AMSC were disappointed as the stock returned -33.4% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
