Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. However, 63% of hedge funds’ top 30 stock picks from the index did beat the market, and returned nearly twice as much on average as the index. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
KCAP Financial Inc (NASDAQ:KCAP) has experienced an increase in support from the world’s most elite money managers recently. KCAP Financial Inc (NASDAQ:KCAP) was in 6 hedge funds’ portfolios at the end of September. There were 5 hedge funds in our database with KCAP Financial Inc (NASDAQ:KCAP) holdings at the end of the previous quarter. This might come as a shock, considering that the shares of the company were down 24.58% throughout the quarter. It makes the hedge fund behavior somewhat unexpected, so we decided to cover the hedge funds holding positions in KCAP Financial Inc (NASDAQ:KCAP) at the end of the last quarter.
The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Veritex Holdings Inc (NASDAQ:VBTX), and Mediwound Ltd (NASDAQ:MDWD) to gather more data points.
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Today, there are tons of metrics investors have at their disposal to evaluate their stock investments. A pair of the most innovative metrics are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the elite fund managers can trounce the broader indices by a solid margin (see the details here).
Keeping this in mind, let’s take a look at the fresh action encompassing KCAP Financial Inc (NASDAQ:KCAP).
What have hedge funds been doing with KCAP Financial Inc (NASDAQ:KCAP)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 20% from the second quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, DG Capital Management, managed by Dov Gertzulin, holds the most valuable position in KCAP Financial Inc (NASDAQ:KCAP). DG Capital Management has a $5.1 million position in the stock, comprising 5.9% of its 13F portfolio. Sitting at the No. 2 spot is Dialectic Capital Management, led by John Fichthorn, holding a $1.2 million position; 0.4% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism consist of John Overdeck and David Siegel’s Two Sigma Advisors, Ari Zweiman’s 683 Capital Partners, and Craig A. Drill’s Craig Drill Capital.
Consequently, specific money managers have jumped into KCAP Financial Inc (NASDAQ:KCAP) headfirst. Craig Drill Capital created the largest position in KCAP Financial Inc (NASDAQ:KCAP). Craig Drill Capital had $0.1 million invested in the company at the end of the quarter. D E Shaw also initiated a $0.1 million position during the quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as KCAP Financial Inc (NASDAQ:KCAP) but similarly valued. We will take a look at Veritex Holdings Inc (NASDAQ:VBTX), Mediwound Ltd (NASDAQ:MDWD), First Security Group Inc (NASDAQ:FSGI), and Numerex Corp. (NASDAQ:NMRX). This group of stocks’ market caps resemble KCAP Financial Inc (NASDAQ:KCAP)’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VBTX | 6 | 26404 | 0 |
| MDWD | 5 | 8439 | 0 |
| FSGI | 7 | 59375 | 0 |
| NMRX | 5 | 8467 | -2 |
As you can see, these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $7 million in KCAP Financial Inc (NASDAQ:KCAP)’s case. First Security Group Inc (NASDAQ:FSGI) is the most popular stock in this table. On the other hand, Mediwound Ltd (NASDAQ:MDWD) is the least popular one with only 5 bullish hedge fund positions. KCAP Financial Inc (NASDAQ:KCAP) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, First Security Group Inc (NASDAQ:FSGI) might be a better candidate to consider a long position.
