Hedge Funds Dipping Their Toes Into IMAX Corporation (IMAX)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of IMAX Corporation (NYSE:IMAX).

Is IMAX Corporation (NYSE:IMAX) an attractive stock to buy now? Money managers are becoming hopeful. The number of bullish hedge fund bets advanced by 3 recently. Our calculations also showed that IMAX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Jim Simons of Renaissance Technologies

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the latest hedge fund action surrounding IMAX Corporation (NYSE:IMAX).

What does smart money think about IMAX Corporation (NYSE:IMAX)?

Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IMAX over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the number one position in IMAX Corporation (NYSE:IMAX), worth close to $15.7 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $9.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Noam Gottesman’s GLG Partners, John Overdeck and David Siegel’s Two Sigma Advisors and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position IBIS Capital Partners allocated the biggest weight to IMAX Corporation (NYSE:IMAX), around 10.6% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to IMAX.

With a general bullishness amongst the heavyweights, some big names have jumped into IMAX Corporation (NYSE:IMAX) headfirst. GAMCO Investors, managed by Mario Gabelli, created the most valuable position in IMAX Corporation (NYSE:IMAX). GAMCO Investors had $1.4 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $1.1 million position during the quarter. The other funds with brand new IMAX positions are Minhua Zhang’s Weld Capital Management, Brandon Haley’s Holocene Advisors, and David Harding’s Winton Capital Management.

Let’s check out hedge fund activity in other stocks similar to IMAX Corporation (NYSE:IMAX). We will take a look at SciPlay Corporation (NASDAQ:SCPL), Denny’s Corporation (NASDAQ:DENN), Oceaneering International (NYSE:OII), and Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). This group of stocks’ market valuations are similar to IMAX’s market valuation.

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As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $47 million in IMAX’s case. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is the most popular stock in this table. On the other hand SciPlay Corporation (NASDAQ:SCPL) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks IMAX Corporation (NYSE:IMAX) is even less popular than SCPL. Hedge funds dodged a bullet by taking a bearish stance towards IMAX. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately IMAX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); IMAX investors were disappointed as the stock returned -2.1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

Disclosure: None. This article was originally published at Insider Monkey.