World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
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 32 percentage points since May 2014 through March 12, 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 review the fresh hedge fund action surrounding Sunrun Inc (NASDAQ:RUN).
Hedge fund activity in Sunrun Inc (NASDAQ:RUN)
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 125% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RUN over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Sunrun Inc (NASDAQ:RUN) was held by Tiger Global Management LLC, which reported holding $194 million worth of stock at the end of December. It was followed by Millennium Management with a $32.1 million position. Other investors bullish on the company included Ardsley Partners, Driehaus Capital, and Arosa Capital Management.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, established the largest position in Sunrun Inc (NASDAQ:RUN). Driehaus Capital had $7.3 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $4.4 million position during the quarter. The other funds with brand new RUN positions are John A. Levin’s Levin Capital Strategies, D. E. Shaw’s D E Shaw, and Sander Gerber’s Hudson Bay Capital Management.
Let’s check out hedge fund activity in other stocks similar to Sunrun Inc (NASDAQ:RUN). These stocks are SPX Corporation (NYSE:SPXC), MaxLinear, Inc. (NYSE:MXL), Hortonworks Inc (NASDAQ:HDP), and Oxford Industries, Inc. (NYSE:OXM). This group of stocks’ market valuations are similar to RUN’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $279 million in RUN’s case. Hortonworks Inc (NASDAQ:HDP) is the most popular stock in this table. On the other hand MaxLinear, Inc. (NYSE:MXL) is the least popular one with only 5 bullish hedge fund positions. Sunrun Inc (NASDAQ:RUN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on RUN as the stock returned 49.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.