We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards AudioEye, Inc. (NASDAQ:AEYE).
Is AudioEye, Inc. (NASDAQ:AEYE) an attractive investment right now? The smart money was selling. The number of long hedge fund bets were cut by 1 recently. AudioEye, Inc. (NASDAQ:AEYE) was in 5 hedge funds’ portfolios at the end of March. The all time high for this statistic is 6. Our calculations also showed that AEYE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to go over the recent hedge fund action surrounding AudioEye, Inc. (NASDAQ:AEYE).
Do Hedge Funds Think AEYE Is A Good Stock To Buy Now?
At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AEYE over the last 23 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Greenhaven Road Investment Management was the largest shareholder of AudioEye, Inc. (NASDAQ:AEYE), with a stake worth $22.4 million reported as of the end of March. Trailing Greenhaven Road Investment Management was Millennium Management, which amassed a stake valued at $3.8 million. Royce & Associates, ExodusPoint Capital, and Marshall Wace LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Greenhaven Road Investment Management allocated the biggest weight to AudioEye, Inc. (NASDAQ:AEYE), around 4.99% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to AEYE.
Judging by the fact that AudioEye, Inc. (NASDAQ:AEYE) has witnessed falling interest from the smart money, logic holds that there lies a certain “tier” of fund managers who were dropping their entire stakes by the end of the first quarter. At the top of the heap, Ari Zweiman’s 683 Capital Partners dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $0.3 million in stock, Renaissance Technologies was right behind this move, as the fund cut about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the first quarter.
Let’s now take a look at hedge fund activity in other stocks similar to AudioEye, Inc. (NASDAQ:AEYE). These stocks are Theratechnologies Inc. (NASDAQ:THTX), uCloudlink Group Inc. (NASDAQ:UCL), PowerFleet, Inc. (NASDAQ:PWFL), eGain Corporation (NASDAQ:EGAN), DarioHealth Corp. (NASDAQ:DRIO), Casper Sleep Inc. (NYSE:CSPR), and PlayAGS, Inc. (NYSE:AGS). This group of stocks’ market caps are closest to AEYE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| THTX | 6 | 43493 | 1 |
| UCL | 1 | 301 | 1 |
| PWFL | 15 | 71698 | 4 |
| EGAN | 8 | 16475 | -7 |
| DRIO | 13 | 65844 | 9 |
| CSPR | 13 | 14552 | 1 |
| AGS | 12 | 47833 | -1 |
| Average | 9.7 | 37171 | 1.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.7 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $28 million in AEYE’s case. PowerFleet, Inc. (NASDAQ:PWFL) is the most popular stock in this table. On the other hand uCloudlink Group Inc. (NASDAQ:UCL) is the least popular one with only 1 bullish hedge fund positions. AudioEye, Inc. (NASDAQ:AEYE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AEYE is 43.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and surpassed the market again by 6.1 percentage points. Unfortunately AEYE wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); AEYE investors were disappointed as the stock returned -39% since the end of March (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Disclosure: None. This article was originally published at Insider Monkey.
