The trading session on Wednesday morning was marked by a slight decline of the major indices, but a number of stocks registered significant gains, such as the small-cap Abengoa SA (ADR) (NASDAQ:ABGB), which jumped by over 25% following news that the Spanish energy company is close to reaching an agreement with creditors that would involve a capital raise of around $725 million (650 million euro). In this article we will take a closer look at the developments that sparked the increase of Abengoa and two other stocks, namely Signal Genetics Inc (NASDAQ:SGNL) and First Niagara Financial Group Inc. (NASDAQ:FNFG) and will see whether the hedge fund sentiment towards them suggests that other investors should follow the hype.
At Insider Monkey we compile the data after the end of each round of 13F filings in order to assess the popularity of several thousand stocks among a pool of over 700 best-skilled hedge funds. The reason we do that is because in this way we can benefit from the outstanding stock-picking skills of these investors, which we can emulate in a certain way. However, contrary to the general opinion, hedge funds most popular picks are not very useful to imitate, because our research that covered the period between 1999 and 2012 suggested that these stocks slightly lagged the performance of the S&P 500 Total Return Index. On the other hand, hedge funds’ top small-cap picks managed to beat the benchmark by nearly one percentage point per month on average, because these companies often hide some intrinsic value and can be explored for more fruitful returns. Our strategy involves imitating a portfolio of 15 most popular small-caps among hedge funds and it has returned 118% since August 2012, beating the S&P 500 ETF (SPY) by some 60 percentage points (see more details here).
In this way, Abengoa SA (ADR) (NASDAQ:ABGB), which, despite today’s gains, is still down by over 50% year-to-date, has remained outside the area of interest of most hedge funds. According to Reuters, the company has secured the support of Banks Santander, HSBC and Credit Agricole to raise more capital and other banks are also expected to join the deal. The company will issue new shares at a lower price and will overhaul its corporate structure, which was approved by its largest shareholders. Abengoa SA (ADR) (NASDAQ:ABGB) also intends to call a meeting of shareholders to ask their opinion regarding the new plan. However, among the funds we track, only two held long positions in Abengoa SA (ADR) (NASDAQ:ABGB) with a total value of around $1.09 million at the end of June, including Jim Simons‘ Renaissance Technologies, which disclosed ownership of 55,900 shares worth $888,000 in its latest 13F. In addition, Daniel S. Och’s OZ Management reported a $15.67 million position that contains warrants underlying 15.80 million shares of Abengoa.