Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Adesto Technologies Corporation (NASDAQ:IOTS) worth your attention right now? Hedge funds are taking a bullish view. The number of bullish hedge fund bets moved up by 6 in recent months. Our calculations also showed that IOTS 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
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 review the recent hedge fund action encompassing Adesto Technologies Corporation (NASDAQ:IOTS).
How are hedge funds trading Adesto Technologies Corporation (NASDAQ:IOTS)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 75% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards IOTS over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Adesto Technologies Corporation (NASDAQ:IOTS) was held by Nokomis Capital, which reported holding $23.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $7.4 million position. Other investors bullish on the company included Driehaus Capital, Rima Senvest Management, and Millennium Management. In terms of the portfolio weights assigned to each position Nokomis Capital allocated the biggest weight to Adesto Technologies Corporation (NASDAQ:IOTS), around 5.04% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, earmarking 1.18 percent of its 13F equity portfolio to IOTS.
As industrywide interest jumped, key money managers have jumped into Adesto Technologies Corporation (NASDAQ:IOTS) headfirst. Driehaus Capital, managed by Richard Driehaus, initiated the largest position in Adesto Technologies Corporation (NASDAQ:IOTS). Driehaus Capital had $5.6 million invested in the company at the end of the quarter. Josh Goldberg’s G2 Investment Partners Management also made a $4.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Ken Griffin’s Citadel Investment Group, and David Harding’s Winton Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Adesto Technologies Corporation (NASDAQ:IOTS) but similarly valued. We will take a look at Amplify Energy Corp. (NYSE:AMPY), Atlantic Power Corp (NYSE:AT), Cincinnati Bell Inc. (NYSE:CBB), and On Deck Capital Inc (NYSE:ONDK). All of these stocks’ market caps resemble IOTS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMPY | 22 | 113577 | 22 |
| AT | 12 | 27905 | 0 |
| CBB | 13 | 23380 | 2 |
| ONDK | 14 | 80339 | -4 |
| Average | 15.25 | 61300 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $54 million in IOTS’s case. Amplify Energy Corp. (NYSE:AMPY) is the most popular stock in this table. On the other hand Atlantic Power Corp (NYSE:AT) is the least popular one with only 12 bullish hedge fund positions. Adesto Technologies Corporation (NASDAQ:IOTS) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately IOTS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IOTS investors were disappointed as the stock returned -15.9% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
