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.
Gladstone Investment Corporation (NASDAQ:GAIN) was in 9 hedge funds’ portfolios at the end of September. GAIN shareholders have witnessed an increase in hedge fund interest of late. There were 5 hedge funds in our database with GAIN holdings at the end of the previous 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 Tilly’s Inc (NYSE:TLYS), Limoneira Company (NASDAQ:LMNR), and Tuesday Morning Corporation (NASDAQ:TUES) to gather more data points.
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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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How are hedge funds trading Gladstone Investment Corporation (NASDAQ:GAIN)?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 80% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GAIN over the last 5 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Millennium Management, one of the 10 largest hedge funds in the world has the largest position in Gladstone Investment Corporation (NASDAQ:GAIN), worth close to $2.1 million. On Millennium Management’s heels is John Overdeck and David Siegel of Two Sigma Advisors, with a $2 million position. Other professional money managers with similar optimism contain Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Ken Griffin’s Citadel Investment Group and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital. We should note that none of these hedge funds are 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.
As industrywide interest jumped, some big names have jumped into Gladstone Investment Corporation (NASDAQ:GAIN) headfirst. Algert Coldiron Investors, led by Peter Algert and Kevin Coldiron, assembled the largest position in Gladstone Investment Corporation (NASDAQ:GAIN). Algert Coldiron Investors had $1.2 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $0.4 million position during the quarter. The following funds were also among the new GAIN investors: Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and Chao Ku’s Nine Chapters Capital Management.
Let’s go over hedge fund activity in other stocks similar to Gladstone Investment Corporation (NASDAQ:GAIN). These stocks are Tilly’s Inc (NYSE:TLYS), Limoneira Company (NASDAQ:LMNR), Tuesday Morning Corporation (NASDAQ:TUES), and Clearfield, Inc. (NASDAQ:CLFD). All of these stocks’ market caps are similar to GAIN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TLYS | 11 | 10213 | 4 |
| LMNR | 2 | 851 | -3 |
| TUES | 7 | 30512 | -1 |
| CLFD | 5 | 11611 | -1 |
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 $13 million. That figure was $6 million in GAIN’s case. Tilly’s Inc (NYSE:TLYS) is the most popular stock in this table. On the other hand Limoneira Company (NASDAQ:LMNR) is the least popular one with only 2 bullish hedge fund positions. Gladstone Investment Corporation (NASDAQ:GAIN) 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 TLYS might be a better candidate to consider taking a long position in.
Disclosure: None
