Hedge Funds Were Heavily Buying These Small-Caps in Q2

With the deadline to file 13Fs officially over, most smart money investors have revealed their equity portfolios for the end of the second quarter. We compiled the data from more than 750 equity portfolios and used the data to assess the aggregate sentiment towards different stocks.

In this article, we are going to take a look at five small-cap stocks that saw an increase in the number of bullish investors from our database during the second quarter. Particularly, we are going to discuss, Southwestern Energy Company (NYSE:SWN), ARRIS International plc (NASDAQ:ARRS), Blue Buffalo Pet Products Inc (NASDAQ:BUFF), Lions Gate Entertainment Corp. (USA) (NYSE:LGF), and Pandora Media Inc (NYSE:P). Without further ado, let’s dive in and take a closer look at the five stocks.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).

#5 Lions Gate Entertainment Corp. (USA) (NYSE:LGF)

– Number of Hedge Fund Holders (as of June 30): 40
– Total Value of Hedge Fund Holdings (as of June 30): $1.01 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 34.00%

The number of funds from our database long Lions Gate Entertainment Corp. (USA) (NYSE:LGF) went up by eight to 40 during the second quarter. Although the Chinese box office has slowed recently, Lions Gate and other movie studios will nevertheless benefit from the tailwind of rising Chinese consumption for movies in the medium to long term. As time goes on, many bulls believe the Chinese government will allow Hollywood to import more movies into China and Hollywood studios will get a larger share of the total receipts. Lions Gate could also be a potential takeover target.

#4 ARRIS International plc (NASDAQ:ARRS)

– Number of Hedge Fund Holders (as of June 30): 36
– Total Value of Hedge Fund Holdings (as of June 30): $1.02 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 25.60%

ARRIS International plc (NASDAQ:ARRS) recently found a new CEO, Bruce McClelland, who will replace Bob Stanzione on September 1. McClelland was previously the VP of engineering at the firm. Hedge fund sentiment in the stock was pretty bullish in the second quarter. The number of investors from our database long ARRIS International rose to 36 at the end of June, from 26 at the end of March and the aggregate value of their holdings surged to $1.02 billion from $882.19 million in the same time period.