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 Ultra Clean Holdings Inc (NASDAQ:UCTT) a safe investment right now? Investors who are in the know are indeed taking a bullish view. The number of bullish hedge fund investments rose by 2 recently. At the end of this article we will also compare UCTT to other stocks including Marlin Business Services Corp. (NASDAQ:MRLN), Container Store Group Inc (NYSE:TCS), and Olympic Steel, Inc. (NASDAQ:ZEUS) to get a better sense of its popularity.
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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.
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What does the smart money think about Ultra Clean Holdings Inc (NASDAQ:UCTT)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, an 18% gain from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in UCTT at the beginning of this year, so hedge fund sentiment has been quite positive in 2016 following a steep drop in the final quarter of 2015. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Royce & Associates, led by Chuck Royce, holds the most valuable position in Ultra Clean Holdings Inc (NASDAQ:UCTT). Royce & Associates has a $13 million position in the stock. The second largest stake is held by Harvey Partners, led by Jeffrey Moskowitz, which holds a $4.8 million position; 5.8% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions include David E. Shaw’s D E Shaw, Jim Simons’ Renaissance Technologies, and Wojciech Uzdelewicz’s Espalier Global Management. We should note that Harvey Partners is 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.
As aggregate interest increased, key money managers were leading the bulls’ herd. Espalier Global Management established the biggest position in Ultra Clean Holdings Inc (NASDAQ:UCTT). Espalier Global Management had $1.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.2 million position during the quarter. The following funds were also among the new UCTT investors: Josh Goldberg’s G2 Investment Partners Management and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ultra Clean Holdings Inc (NASDAQ:UCTT) but similarly valued. We will take a look at Marlin Business Services Corp. (NASDAQ:MRLN), Container Store Group Inc (NYSE:TCS), Olympic Steel, Inc. (NASDAQ:ZEUS), and Patriot National Inc (NYSE:PN). This group of stocks’ market valuations match UCTT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRLN | 7 | 63623 | 1 |
| TCS | 7 | 13829 | -5 |
| ZEUS | 9 | 15182 | -1 |
| PN | 8 | 16926 | 3 |
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 $27 million. That figure was $26 million in UCTT’s case. Olympic Steel, Inc. (NASDAQ:ZEUS) is the most popular stock in this table. On the other hand Marlin Business Services Corp. (NASDAQ:MRLN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Ultra Clean Holdings Inc (NASDAQ:UCTT) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None
