Insiders are loading up on shares of Actua Corp (NASDAQ:ACTA). Should you follow them? Shares of the cloud company surged to a closing price of $15.15 per share on Tuesday, from a previous close of $13.17 per share the previous day, after successive news of shares being purchased by company insiders. The most recent purchase was made by the firm’s Co-Founder, Chairman and Chief Executive Officer, Walter Buckley III, who purchased 10,000 shares on Monday, June 22. Buckley now owns 89,748 shares of his company. This follows purchases made by Director Thomas Gerrity, who also purchased 10,000 shares of Actua Corp on Friday, June 19. The previous day, June 18, Director David Downes and President Doug Alexander also made 10,000-share purchases each of Actua Corp stock.
Apart from Actua Corp (NASDAQ:ACTA)’s top management team, the world’s most elite money managers have shown an increase in support for the company as of late. The cloud technology firm was in seven hedge funds’ portfolios at the end of the first quarter of 2015 among the funds tracked by Insider Monkey, an increase from six hedge funds in our database with Actua holdings at the end of the previous quarter.
It is well-known that hedge funds have under-performed the S&P 500 based on net returns over the past several years. But we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning over 142% and beating the market by more than 82 percentage points (read the details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.
Apart from tracking hedge fund activity, we also track insider activity in stocks like Actua Corp (NASDAQ:ACTA) because these transactions offer valuable insight into whether a specific firm is gaining the support of those who should be the most familiar with these companies. There would be very few individuals who would know a company inside and out better than the key management people of those very companies. In the case of Actua Corp, these top executives are showing heightened confidence in the firm.
For example, apart from his recent 10,000-share purchase on Monday, Walter Buckley also bought 10,000 shares at the start of the month. Buckley also made two other purchases in May: one for 27,500 shares on May 8 and another for 10,000 shares on May 7. At the end of May, Director David Berkman purchased 20,000 shares of the firm, while at the start of said month, Director David Adelman also bought 20,000 shares of Actua Corp. Needless to say, there has been intense insider buying of the company’s shares in the past two months, following its tumble to a 52-week low in early May.
Taking all of this into account, let’s further analyze how hedge funds have been treating Actua Corp (NASDAQ:ACTA).
Hedge fund activity in Actua Corp (NASDAQ:ACTA)
At the end of the first quarter, a total of seven of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. When it comes to the total value of those holdings, however, we see a slightly bearish sign in the fact that total value of holdings decreased to about $10.06 million by the end of the first quarter of 2015 from about $14.05 million at the end of the fourth quarter of 2014. This is a 28.37% decline and should be noted even while taking into consideration that the stock plunged 16.13% from January 2 to March 31 of this year, which accounted for some of that dip in total value.
Of the funds tracked by Insider Monkey, SG Capital Management, managed by Ken Grossman and Glen Schneider, holds the largest position in Actua Corp (NASDAQ:ACTA). SG Capital Management has a $6.3 million position in the stock, comprising 1.8% of its 13F portfolio. On SG Capital Management’s heels is Renaissance Technologies, managed by Jim Simons, which held a $1.1 million position: less than 0.1% of its 13F portfolio. Some other hedgies that hold long positions comprise D. E. Shaw’s D E Shaw, and Josh Goldberg’s G2 Investment Partners Management.
As aggregate interest increased, some big names were leading the bulls’ herd. The aforementioned Renaissance Technologies assembled the most outsized position in Actua Corp (NASDAQ:ACTA) with its $1.1 million investment in the company. Ken Griffin‘s Citadel Investment Group meanwhile initiated a $556,000 position during the quarter. The only other fund with a new position in the stock was Peter Muller’s PDT Partners.
While the total investments of hedge funds in the stock decreased slightly during the first quarter and they appear to have accurately predicted its dip early in the second quarter, the massive spike in confidence by insiders in the company is now pushing the next growth trend for the stock, which is up nearly 18% over the last month. Given that, we also recommend going long on Actua Corp (NASDAQ:ACTA).