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.
Hedge fund interest in Nanometrics Incorporated (NASDAQ:NANO) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NANO to other stocks including Handy and Harman Ltd (NASDAQ:HNH), AEP Industries (NASDAQ:AEPI), and Newcastle Investment Corp. (NYSE:NCT) to get a better sense of its popularity.
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Keeping this in mind, let’s view the recent action encompassing Nanometrics Incorporated (NASDAQ:NANO).
How are hedge funds trading Nanometrics Incorporated (NASDAQ:NANO)?
Heading into Q4, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the biggest position in Nanometrics Incorporated (NASDAQ:NANO). Royce & Associates has an $33.5 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Discovery Group, managed by Michael Murphy and Daniel Donoghue, which holds an $8.8 million position; 3% of its 13F portfolio is allocated to the company. Some other peers that are bullish comprise Christopher Zepf and Brian Thonn’s Kingdom Ridge Capital, Jim Simons’s Renaissance Technologies and Ken Griffin’s Citadel Investment Group.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Nanometrics Incorporated (NASDAQ:NANO) but similarly valued. These stocks are Handy and Harman Ltd (NASDAQ:HNH), AEP Industries (NASDAQ:AEPI), Newcastle Investment Corp. (NYSE:NCT), and Bellatrix Exploration Ltd Ordinary Shares (Canada) (NYSE:BXE). This group of stocks’ market values are similar to NANO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HNH | 6 | 214972 | -1 |
| AEPI | 12 | 84754 | 5 |
| NCT | 12 | 11849 | 1 |
| BXE | 10 | 100526 | -2 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $46 million in NANO’s case. AEP Industries (NASDAQ:AEPI) is the most popular stock in this table. On the other hand Handy and Harman Ltd (NASDAQ:HNH) is the least popular one with only 6 bullish hedge fund positions. Nanometrics Incorporated (NASDAQ:NANO) 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 AEPI might be a better candidate to consider a long position.
