Hedge Funds Are Betting On Alliance Fiber Optic Products Inc (AFOP)

Many investors, including Carl Icahn or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the third quarter, many investors lost money due to unpredictable events such as the concerns over Valeant’s drug pricing policy that led to an overall drop among pharma stocks. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Alliance Fiber Optic Products Inc (NASDAQ:AFOP) changed recently.

Alliance Fiber Optic Products has seen an increase in enthusiasm from smart money recently. AFOP was in 14 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with AFOP 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 Checkpoint Systems, Inc. (NYSE:CKP), Carbonite Inc (NASDAQ:CARB), and Park Sterling Bank (NASDAQ:PSTB) to gather more data points.

According to most market participants, hedge funds are seen as unimportant, outdated financial tools of the past. While there are more than 8000 funds with their doors open today, We hone in on the top tier of this group, around 700 funds. Most estimates calculate that this group of people watch over the lion’s share of the smart money’s total capital, and by tracking their top equity investments, Insider Monkey has spotted numerous investment strategies that have historically outrun Mr. Market. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points per year for a decade in their back tests.

With all of this in mind, let’s view the recent action surrounding Alliance Fiber Optic Products Inc (NASDAQ:AFOP).

What have hedge funds been doing with Alliance Fiber Optic Products Inc (NASDAQ:AFOP)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the previous quarter. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the most valuable position in Alliance Fiber Optic Products Inc (NASDAQ:AFOP). Renaissance Technologies has a $8.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, led by Cliff Asness, holding a $2.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. The remaining members of the smart money that are bullish consist of Peter Alger and Kevin Coldiron’s Algert Coldiron Investors, Israel Englander’s Millennium Management and Chuck Royce’s Royce & Associates.

As aggregate interest increased, some big names have jumped into Alliance Fiber Optic Products Inc (NASDAQ:AFOP) headfirst. Algert Coldiron Investors created the most valuable position in Alliance Fiber Optic Products Inc (NASDAQ:AFOP). Algert Coldiron Investors had $2 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Alliance Fiber Optic Products Inc (NASDAQ:AFOP). We will take a look at Checkpoint Systems, Inc. (NYSE:CKP), Carbonite Inc (NASDAQ:CARB), Park Sterling Bank (NASDAQ:PSTB), and Axcelis Technologies Inc (NASDAQ:ACLS). This group of stocks’ market values match AFOP’s market value.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $47 million, compared to $20 million in AFOP’s case. Axcelis Technologies Inc (NASDAQ:ACLS) is the most popular stock in this table, while Park Sterling Bank (NASDAQ:PSTB) is the least popular one with only 12 bullish hedge fund positions. Alliance Fiber Optic Products Inc (NASDAQ:AFOP) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ACLS might be a better candidate to consider a long position.