Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Is BroadSoft Inc (NASDAQ:BSFT) a bargain? Hedge funds are thoroughly reducing their bets on the stock. The number of bullish hedge fund positions decreased by 6 recently. BSFT was in 13 hedge funds’ portfolios at the end of the third quarter of 2016. There were 19 hedge funds in our database with BSFT holdings at the end of the previous quarter. At the end of this article we will also compare BSFT to other stocks including Capital Bank Financial Corp (NASDAQ:CBF), Yirendai Ltd – ADR (NYSE:YRD), and 8×8, Inc. (NASDAQ:EGHT) to get a better sense of its popularity.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
What have hedge funds been doing with BroadSoft Inc (NASDAQ:BSFT)?
Heading into the fourth quarter of 2016, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a 32% drop from the second quarter of 2016, after hedge fund ownership peaked at 19. The graph below displays the number of hedge funds with bullish position in BSFT over the last 5 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Dan Friedberg’s Sagard Capital Partners Management Corp has the biggest position in BroadSoft Inc (NASDAQ:BSFT), worth close to $62.8 million, comprising 23% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $19.3 million position. Some other peers that are bullish include Anand Parekh’s Alyeska Investment Group, Chuck Royce’s Royce & Associates, and George McCabe’s Portolan Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.