Monotype Imaging Holdings Inc. (TYPE): Are Hedge Funds Right About This Stock?

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 Monotype Imaging Holdings Inc. (NASDAQ:TYPE).

Monotype Imaging Holdings Inc. (NASDAQ:TYPE) investors should pay attention to an increase in enthusiasm from smart money in recent months. There were 20 funds in our database with TYPE positions at the end of September. At the end of this article we will also compare TYPE to other stocks including Associated Capital Group Inc (NYSE:AC), Biglari Holdings Inc (NYSE:BH), and First Commonwealth Financial (NYSE:FCF) to get a better sense of its popularity.

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.

Now, let’s take a look at the new action surrounding Monotype Imaging Holdings Inc. (NASDAQ:TYPE).

How are hedge funds trading Monotype Imaging Holdings Inc. (NASDAQ:TYPE)?

At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in Monotype Imaging Holdings Inc. (NASDAQ:TYPE), up by 18% over the quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in TYPE at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Renaissance Technologies, one of the largest funds in the world, has the number one position in Monotype Imaging Holdings Inc. (NASDAQ:TYPE), worth close to $27.4 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, led by Chuck Royce, holding a $16.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock.

As one would reasonably expect, specific money managers were breaking ground themselves. RGM Capital, led by Robert G. Moses, established the most outsized position in Monotype Imaging Holdings Inc. (NASDAQ:TYPE). RGM Capital had $15.1 million invested in the company at the end of the quarter. Douglas T. Granat’s Trigran Investments also made a $6.2 million investment in the stock during the quarter. The other funds with brand new TYPE positions are Jack Ripsteen’s Potrero Capital Research, Glenn Russell Dubin’s Highbridge Capital Management, and Brian C. Freckmann’s Lyon Street Capital. We should note that two of these hedge funds (RGM Capital and Potrero Capital Research) 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.

Let’s go over hedge fund activity in other stocks similar to Monotype Imaging Holdings Inc. (NASDAQ:TYPE). We will take a look at Associated Capital Group Inc (NYSE:AC), Biglari Holdings Inc (NYSE:BH), First Commonwealth Financial (NYSE:FCF), and Mitel Networks Corporation (NASDAQ:MITL). This group of stocks’ market values resemble TYPE’s market value.

As you can see these stocks had an average of eight investors with bullish positions and the average amount invested in these stocks was $51 million, versus $96 million in TYPE’s case. Mitel Networks Corporation (NASDAQ:MITL) is the most popular stock in this table, while Associated Capital Group Inc (NYSE:AC) is the least popular one with only four investors having reported long positions. Compared to these stocks Monotype Imaging Holdings Inc. (NASDAQ:TYPE) 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