Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
One stock that has seen an increase in popularity among smart money investors is Blackhawk Network Holdings Inc (NASDAQ:HAWK), in which 31 funds from our database held shares at the end of September. At the end of this article we will also compare HAWK to other stocks including Invesco Mortgage Capital Inc (NYSE:IVR), Argo Group International Holdings, Ltd. (NASDAQ:AGII), and AZZ Incorporated (NYSE:AZZ) to get a better sense of its popularity.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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Now, let’s take a look at the latest action encompassing Blackhawk Network Holdings Inc (NASDAQ:HAWK).
Hedge fund activity in Blackhawk Network Holdings Inc (NASDAQ:HAWK)
At the end of September, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in Blackhawk Network Holdings, up by 41% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in HAWK at the beginning of this year. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Claus Moller’s P2 Capital Partners has the number one position in Blackhawk Network Holdings Inc (NASDAQ:HAWK), worth close to $84.7 million, amounting to 13.3% of its total 13F portfolio. Sitting at the No. 2 spot is Peter S. Park’s Park West Asset Management, with a $67.9 million position; the fund has 6.2% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish contain Alok Agrawal’s Bloom Tree Partners, James A. Noonan’s Pivot Point Capital, and Douglas Dossey and Arthur Young’s Tensile Capital. We should note that Tensile Capital is 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.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Ulysses Management, led by Joshua Nash, established the most valuable position in Blackhawk Network Holdings Inc (NASDAQ:HAWK). Ulysses Management had $6.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $4.7 million investment in the stock during the quarter. The following funds were also among the new HAWK investors: Nick Niell’s Arrowgrass Capital Partners, Israel Englander’s Millennium Management, and Seymour Sy Kaufman and Michael Stark’s Crosslink Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Blackhawk Network Holdings Inc (NASDAQ:HAWK) but similarly valued. We will take a look at Invesco Mortgage Capital Inc (NYSE:IVR), Argo Group International Holdings, Ltd. (NASDAQ:AGII), AZZ Incorporated (NYSE:AZZ), and First Majestic Silver Corp (NYSE:AG). This group of stocks’ market caps are similar to HAWK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IVR | 14 | 95331 | 0 |
| AGII | 13 | 101675 | -5 |
| AZZ | 10 | 15821 | 1 |
| AG | 19 | 131473 | 9 |
As you can see these stocks had an average of 14 funds with bullish positions and the average amount invested in these stocks was $86 million, versus $328 million in HAWK’s case. First Majestic Silver Corp (NYSE:AG) is the most popular stock in this table. On the other hand AZZ Incorporated (NYSE:AZZ) is the least popular one with only 10 investors holding shares. Compared to these stocks Blackhawk Network Holdings Inc (NASDAQ:HAWK) 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
