Is Luna Innovations Incorporated (LUNA) Going to Burn These Hedge Funds?

Insider Monkey finished processing more than 700 13F filings made by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of September 30. What do these smart investors think about Luna Innovations Incorporated (NASDAQ:LUNA)?

Luna Innovations Incorporated investors should be aware of an increase in enthusiasm from smart money lately. LUNA was in 4 hedge funds’ portfolios at the end of September. There were 3 hedge funds in our database with LUNA holdings at the end of the previous quarter. At the end of this article we will also compare LUNA to other stocks, including SMTC Corporation (USA) (NASDAQ:SMTX), Deswell Industries, Inc. (NASDAQ:DSWL), and Skyline Corporation (NYSEMKT:SKY) to get a better sense of its popularity.

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To most market participants, hedge funds are perceived as slow, outdated financial vehicles of the past. While there are over 8000 funds with their doors open at the moment, We look at the moguls of this group, about 700 funds. It is estimated that this group of investors watch over most of the smart money’s total capital, and by shadowing their top investments, Insider Monkey has uncovered a few investment strategies that have historically beaten Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, let’s view the fresh action regarding Luna Innovations Incorporated (NASDAQ:LUNA).

How are hedge funds trading Luna Innovations Incorporated (NASDAQ:LUNA)?

Heading into Q4, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Paul Solit’s Potomac Capital Management has the biggest position in Luna Innovations Incorporated (NASDAQ:LUNA), worth close to $0.6 million, comprising 0.8% of its total 13F portfolio. Coming in second is Renaissance Technologies, which holds a $0.1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions encompass Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk’s GRT Capital Partners and Ken Griffin’s Citadel Investment Group.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Luna Innovations Incorporated (NASDAQ:LUNA) but similarly valued. These stocks are SMTC Corporation (USA) (NASDAQ:SMTX), Deswell Industries, Inc. (NASDAQ:DSWL), Skyline Corporation (NYSEMKT:SKY), and Cardica, Inc. (NASDAQ:CRDC). All of these stocks’ market caps are similar to LUNA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SMTX 5 4093 0
DSWL 4 2074 2
SKY 5 6416 1
CRDC 6 7605 0

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was just $1 million in LUNA’s case. Cardica, Inc. (NASDAQ:CRDC) is the most popular stock in this table. On the other hand Deswell Industries, Inc. (NASDAQ:DSWL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Luna Innovations Incorporated (NASDAQ:LUNA) is even less popular than DSWL. Considering that hedge funds aren’t fond of this stock in relation to other companies mentioned in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.