Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Exa Corp (NASDAQ:EXA).
Exa Corp (NASDAQ:EXA) was in 6 hedge funds’ portfolios at the end of September. EXA investors should pay attention to an increase in enthusiasm from smart money lately. There were 3 hedge funds in our database with EXA holdings at the end of June. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as KongZhong Corporation(ADR) (NASDAQ:KZ), Orchid Island Capital Inc (NYSE:ORC), and Immersion Corporation (NASDAQ:IMMR) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
What does the smart money think about Exa Corp (NASDAQ:EXA)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 100% surge from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXA over the last 5 quarters, which is still beneath its high point of the last year despite the recent surge. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, George Soros’ Soros Fund Management has the largest position in Exa Corp (NASDAQ:EXA), worth close to $16.8 million. Sitting at the No. 2 spot is Renaissance Technologies, one of the largest hedge funds in the world, with a $3.7 million position. Other professional money managers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management, and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that Soros Fund Management is among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
As aggregate interest increased, some big names were leading the bulls’ herd. Arrowstreet Capital initiated the biggest position in Exa Corp (NASDAQ:EXA). Arrowstreet Capital had $1 million invested in the company at the end of the quarter. Millennium Management also initiated a $0.4 million position during the quarter. The only other fund with a new position in the stock is Two Sigma Advisors.
Let’s check out hedge fund activity in other stocks similar to Exa Corp (NASDAQ:EXA). These stocks are KongZhong Corporation(ADR) (NASDAQ:KZ), Orchid Island Capital Inc (NYSE:ORC), Immersion Corporation (NASDAQ:IMMR), and Ardmore Shipping Corp (NYSE:ASC). This group of stocks’ market valuations are closest to EXA’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $22 million in EXA’s case. Immersion Corporation (NASDAQ:IMMR) is the most popular stock in this table. On the other hand KongZhong Corporation(ADR) (NASDAQ:KZ) is the least popular one with only 3 bullish hedge fund positions. Exa Corp (NASDAQ:EXA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard IMMR might be a better candidate to consider taking a long position in.