Hedge Funds Making Big Moves Into These IPO’s While An Activist Rages

Just a few hours ago, the European Central Bank hinted at more economic stimulus through a potential expansion of its bond-buying program, which propelled global stocks higher. The likelihood that the Federal Reserve will raise interest rates by the end of the year is not very high either, so there are no major impediments to the resumption of the bull market at this point in time. Meanwhile, hedge fund managers and other money managers have been adjusting their portfolios after enduring an ugly third quarter, by among other things, investing in some of the recent IPO’s to the hit the markets. Thus, the following article will discuss three recent moves made by some of the elite hedge funds monitored by Insider Monkey.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

In a Schedule 13G filing with the SEC, Ken Griffin’s Citadel Advisors LLC reported an ownership stake of 9.56 million shares in First Data Corp (NYSE:FDC), accounting for 6.0% of the company’s outstanding shares. The payment technology company started trading on the New York Stock Exchange on October 15, after selling 160 million shares of its Class A common stock at an IPO price of $16.00. First Data Corp (NYSE:FDC) is the largest processor of credit and debit card transactions in the world, processing 28% of the world’s e-commerce volume. Its business is based on transaction-related fees, multi-year contracts, and an extensive client base. Hence, there are bountiful growth opportunities for the newly-public company in the months and years ahead, as it can market its set of commerce solutions to new clients all around the world. First Data Corp (NYSE:FDC) is set to reveal its first earnings report since going public on October 26, after the market close, so do not forget to include the stock in your watchlist.

Let’s move on to the next page of the article, where we dicuss the stances of two hedge funds on two other stocks.

A freshly-submitted Form 4 filing with the SEC disclosed that Samuel Isaly’s Orbimed Advisors owns 3.25 million shares of Series A Preferred Stock and 1.95 million shares of Series B Preferred Stock of Dimension Therapeutics Inc. (NASDAQ:DMTX), all of which are convertible at any time into shares of common stock upon the closing of the company’s initial public offering. According to a recent Form S-1 filing, the gene therapy platform company offered an additional 5.5 million shares to the public, with it anticipating net proceeds from the sale of approximately $73.7 million, assuming an IPO price of $15.00 per share. Following this offering, the number of shares outstanding will stand at 24.88 million shares. However, it appears that Dimension Therapeutics Inc. (NASDAQ:DMTX) priced the 5.5 million shares at $13.00, below the previously expected range of $14.00-to-$16.00. At the same time, the shares of the company are currently trading 10% below the $13 price level, which might suggest that the market is not overly enthusiastic about the stock.

A freshly-amended 13D filing reveals that William Martin’s Raging Capital Management owns 1.94 million shares of EZchip Semiconductor Ltd (NASDAQ:EZCH), which represent 6.5% of its outstanding common stock. The investment firm’s position has not changed since its previous 13D filing on the company, which we covered earlier this month. Most importantly, Raging Capital reiterated its stance on the merger agreement between Mellanox Technologies Ltd. (NASDAQ:MLNX) and EZchip through the recently-published public filing. The long/short equity hedge fund expressed its belief that the supplier of end-to-end interconnect solutions can grow significantly as an independent entity and should not be sold. Let us remind you that the two companies recently announced a merger agreement, under which Mellanox would buy EZchip for $25.50 per share in an all-cash deal. At the same time, Raging Capital Management revealed its intentions to combat the aforementioned deal by soliciting proxies from other shareholders against approval of the deal at the annual meeting of shareholders that will take place on November 12, 2015. Even more to that, the investment firm nominated Paul K. McWilliams and Kenneth H. Traub for election to EZchip Semiconductor Ltd (NASDAQ:EZCH)’s Board of Directors, which suggests that Raging Capital is doing all it can to stop the deal between the aforementioned companies. Jim Simons’ Renaissance Technologies owned nearly 278,000 shares of EZchip Semiconductor Ltd (NASDAQ:EZCH) at the end of the second quarter.

Disclosure: None