Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
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 take a look at the key hedge fund action regarding Transenterix Inc (NYSEMKT:TRXC).
How have hedgies been trading Transenterix Inc (NYSEMKT:TRXC)?
Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 63% from the fourth quarter of 2018. On the other hand, there were a total of 11 hedge funds with a bullish position in TRXC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Transenterix Inc (NYSEMKT:TRXC) was held by Aisling Capital, which reported holding $5.7 million worth of stock at the end of March. It was followed by Masters Capital Management with a $3.4 million position. Other investors bullish on the company included Citadel Investment Group, OZ Management, and Two Sigma Advisors.
As industrywide interest jumped, key money managers have been driving this bullishness. Winton Capital Management, managed by David Harding, created the largest position in Transenterix Inc (NYSEMKT:TRXC). Winton Capital Management had $0.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.1 million position during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, D. E. Shaw’s D E Shaw, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now take a look at hedge fund activity in other stocks similar to Transenterix Inc (NYSEMKT:TRXC). These stocks are pdvWireless Inc (NASDAQ:PDVW), McEwen Mining Inc (NYSE:MUX), U.S. Well Services, Inc. (NASDAQ:USWS), and First Financial Corp (NASDAQ:THFF). This group of stocks’ market values resemble TRXC’s market value.
|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 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $11 million in TRXC’s case. pdvWireless Inc (NASDAQ:PDVW) is the most popular stock in this table. On the other hand McEwen Mining Inc (NYSE:MUX) is the least popular one with only 5 bullish hedge fund positions. Transenterix Inc (NYSEMKT:TRXC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 TRXC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TRXC were disappointed as the stock returned -44.1% 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.