Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Ituran Location and Control Ltd. (NASDAQ:ITRN) the right investment to pursue these days? Prominent investors are in an optimistic mood. The number of long hedge fund positions improved by 2 recently. Our calculations also showed that ITRN isn’t among the 30 most popular stocks among hedge funds (see the video below). ITRN was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. There were 11 hedge funds in our database with ITRN holdings at the end of the previous quarter.
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. We’re going to take a look at the key hedge fund action encompassing Ituran Location and Control Ltd. (NASDAQ:ITRN).
Hedge fund activity in Ituran Location and Control Ltd. (NASDAQ:ITRN)
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ITRN over the last 16 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the number one position in Ituran Location and Control Ltd. (NASDAQ:ITRN). Renaissance Technologies has a $43.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Bo Shan of Gobi Capital, with a $38.8 million position; the fund has 7.7% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass Parsa Kiai’s Steamboat Capital Partners, Jeffrey Jacobowitz’s Simcoe Capital Management and Israel Englander’s Millennium Management.
As aggregate interest increased, some big names have jumped into Ituran Location and Control Ltd. (NASDAQ:ITRN) headfirst. Steamboat Capital Partners, managed by Parsa Kiai, established the most outsized position in Ituran Location and Control Ltd. (NASDAQ:ITRN). Steamboat Capital Partners had $13.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $0.9 million investment in the stock during the quarter. The only other fund with a brand new ITRN position is Richard Driehaus’s Driehaus Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ituran Location and Control Ltd. (NASDAQ:ITRN) but similarly valued. We will take a look at CONSOL Energy Inc. (NYSE:CEIX), Ameresco Inc (NYSE:AMRC), Astec Industries, Inc. (NASDAQ:ASTE), and nLIGHT, Inc. (NASDAQ:LASR). This group of stocks’ market valuations match ITRN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CEIX | 16 | 104828 | -3 |
| AMRC | 5 | 28062 | -5 |
| ASTE | 11 | 93407 | 0 |
| LASR | 5 | 51538 | 0 |
| Average | 9.25 | 69459 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $120 million in ITRN’s case. CONSOL Energy Inc. (NYSE:CEIX) is the most popular stock in this table. On the other hand Ameresco Inc (NYSE:AMRC) is the least popular one with only 5 bullish hedge fund positions. Ituran Location and Control Ltd. (NASDAQ:ITRN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ITRN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ITRN were disappointed as the stock returned -16.9% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
