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Should you Follow These Hedge Funds’ Moves? The Overall Sentiment May Give an Answer to this Question

The recent volatility in the market has shaken up most U.S. stocks, so hedge funds and other investors have started to rebalance or adjust their portfolios. They may either buy more shares on weakness or jettison some of the holdings that are not expected to provide any substantial benefits in the future. The following article will cover the moves disclosed by three elite hedge fund investors monitored by the Insider Monkey team. We will also discuss the hedge fund sentiment on each stock covered in this article in order to find out what top money managers think of them.

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Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 118% over the last 36 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).

To start off, Clint Carlson’s Carlson Capital reported selling 50,000 shares of Ultratech Inc. (NASDAQ:UTEK) at a weighted average price of $15.45 via a Form 4 filing with the SEC, reducing its overall position to 3.25 million shares. A little more than a week ago, Carlson Capital sold an additional 80,761 shares at prices ranging from $15.66 to $15.68 per share (read more details here). It appears that the hedge fund industry is not very fond of this stock either, as the number of money managers invested in Ultratech Inc. (NASDAQ:UTEK) decreased to 11 from 13 during the second quarter. However, the value of their investments increased by nearly 20% to $113.12 million during the three-month period. At the same time, the hedge funds tracked by Insider Monkey stockpiled 22.10% of Ultratech’s outstanding common stock as of June 30. The shares of Ultratech appear to be in a bottoming-out phase at the moment, after losing slightly more than 10% since the beginning of 2015. D.E. Shaw & Co. L.P., founded by David E. Shaw, represents another top shareholder of Ultratech Inc. (NASDAQ:UTEK) with slightly more than 736,000 shares.

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