Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Hamilton Lane Incorporated (NASDAQ:HLNE).
Hamilton Lane Incorporated (NASDAQ:HLNE) was in 6 hedge funds’ portfolios at the end of the second quarter of 2019. HLNE investors should be aware of a decrease in activity from the world’s largest hedge funds of late. There were 10 hedge funds in our database with HLNE positions at the end of the previous quarter. Our calculations also showed that HLNE isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the key hedge fund action encompassing Hamilton Lane Incorporated (NASDAQ:HLNE).
What does smart money think about Hamilton Lane Incorporated (NASDAQ:HLNE)?
At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in HLNE a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Hamilton Lane Incorporated (NASDAQ:HLNE) was held by Renaissance Technologies, which reported holding $47.5 million worth of stock at the end of March. It was followed by Royce & Associates with a $3.8 million position. Other investors bullish on the company included Two Sigma Advisors, AQR Capital Management, and Quantinno Capital.
Because Hamilton Lane Incorporated (NASDAQ:HLNE) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of fund managers that elected to cut their full holdings last quarter. Interestingly, David Costen Haley’s HBK Investments dropped the largest stake of all the hedgies followed by Insider Monkey, valued at close to $1 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Hamilton Lane Incorporated (NASDAQ:HLNE). We will take a look at The Medicines Company (NASDAQ:MDCO), Avista Corp (NYSE:AVA), Simpson Manufacturing Co, Inc. (NYSE:SSD), and CVB Financial Corp. (NASDAQ:CVBF). This group of stocks’ market caps are closest to HLNE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDCO | 33 | 921458 | 8 |
| AVA | 11 | 144066 | -7 |
| SSD | 17 | 227787 | -2 |
| CVBF | 12 | 60853 | 0 |
| Average | 18.25 | 338541 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $339 million. That figure was $56 million in HLNE’s case. The Medicines Company (NASDAQ:MDCO) is the most popular stock in this table. On the other hand Avista Corp (NYSE:AVA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Hamilton Lane Incorporated (NASDAQ:HLNE) is even less popular than AVA. Hedge funds dodged a bullet by taking a bearish stance towards HLNE. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HLNE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HLNE investors were disappointed as the stock returned 0.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
