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.
If you’d ask most stock holders, hedge funds are perceived as underperforming, old investment tools of the past. While there are greater than 8000 funds trading at the moment, We hone in on the top tier of this club, approximately 750 funds. These money managers control the majority of the smart money’s total capital, and by tailing their finest equity investments, Insider Monkey has deciphered many investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
Let’s take a look at the fresh hedge fund action regarding TopBuild Corp (NYSE:BLD).
What have hedge funds been doing with TopBuild Corp (NYSE:BLD)?
At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in BLD a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in TopBuild Corp (NYSE:BLD) was held by Adage Capital Management, which reported holding $49.3 million worth of stock at the end of March. It was followed by Hawk Ridge Management with a $14.4 million position. Other investors bullish on the company included Lodge Hill Capital, Marshall Wace LLP, and PEAK6 Capital Management.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, created the biggest position in TopBuild Corp (NYSE:BLD). Driehaus Capital had $3.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $1.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Curtis Schenker and Craig Effron’s Scoggin, Hoon Kim’s Quantinno Capital, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as TopBuild Corp (NYSE:BLD) but similarly valued. These stocks are Acadia Realty Trust (NYSE:AKR), Matador Resources Co (NYSE:MTDR), Norbord Inc. (NYSE:OSB), and Workiva Inc (NYSE:WK). This group of stocks’ market valuations resemble BLD’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $128 million. That figure was $108 million in BLD’s case. Workiva Inc (NYSE:WK) is the most popular stock in this table. On the other hand Norbord Inc. (NYSE:OSB) is the least popular one with only 7 bullish hedge fund positions. TopBuild Corp (NYSE:BLD) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on BLD as the stock returned 20.3% during the same period 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.