Tracking smart money in the small cap space can be an innovative investment strategy as small cap stocks can provide much higher returns than mid cap and large cap stocks. This is a smart strategy as it is difficult for small retail investors to find information about small cap stocks which are generally not well covered by the media or analysts. Smart money has the resources and expertise to dig out the winners in the small cap space and we can use their public filings to replicate their picks.
Billionaire Ray Dalio is the founder of the world’s largest hedge fund Bridgewater Associates, and his stock picks and broad market views are worth looking into. Ray Dalio thinks that the new Trump administration will have major impact on the economy and markets. He also thinks that the 30 year bond bull market has most likely come to an end and a secular low in inflation has been reached. His preliminary assessment is that the new administration’s policies will be broadly positive for the US economy. Lower regulation, fiscal stimulus and corporate tax reductions will be a positive catalyst for domestically oriented stocks but may not be favorable for multinationals.
At Insider Monkey, we backtested a portfolio of 5 of his largest positions in small-cap stocks and calculated the returns thereof. These stocks returned 1.96% on an average each month from 2006-2012. During the same period S&P 500 Index returned just 0.45% per month. These picks outperformed the market by a whopping 1.5 percentage points per month, or 18 percentage points per year. We describe Ray Dalio’s top small cap picks in the article below.
At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
Bridgewater Associates held 3.3 million shares of Nobel Corporation Ordinary shares (UK) (NYSE:NE) as at the end of third quarter with a value of $20.9 million. The fund bought more than a million shares of Nobel Corporation Ordinary shares (UK) (NYSE:NE) during the quarter with the latter accounting for 0.21% of the former’s portfolio as per their latest round of 13F filing. The company has a market cap value of $1.5 billion. The shares of this oil and gas offshore drilling contractor were up almost 12% in the last three months and have an average rating of hold. For its third quarter results, Nobel Corporation Ordinary shares (UK) (NYSE:NE) reported cash and cash equivalents of $426 million and a loss of $0.23 per share on revenues of $385 million. Some of the other hedge funds having large positions in Nobel Corporation Ordinary shares (UK) (NYSE:NE) at the end of third quarter were Alyeska Management Group and Firefly Value Partners. As at the end of September, 34 funds as per our records held 14.3% of the company’s outstanding stock.