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.
Penn Virginia Corporation (NASDAQ:PVAC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of the second quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Donegal Group Inc (NASDAQ:DGICA), Ares Commercial Real Estate Corp (NYSE:ACRE), and PennantPark Investment Corp. (NASDAQ:PNNT) to gather more data points. Our calculations also showed that PVAC isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. Let’s take a look at the key hedge fund action regarding Penn Virginia Corporation (NASDAQ:PVAC).
What does smart money think about Penn Virginia Corporation (NASDAQ:PVAC)?
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PVAC over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Penn Virginia Corporation (NASDAQ:PVAC) was held by Mangrove Partners, which reported holding $53.1 million worth of stock at the end of March. It was followed by Strategic Value Partners with a $47.3 million position. Other investors bullish on the company included Contrarian Capital, Encompass Capital Advisors, and 683 Capital Partners.
Because Penn Virginia Corporation (NASDAQ:PVAC) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of hedge funds that elected to cut their full holdings heading into Q3. It’s worth mentioning that Robert Emil Zoellner’s Alpine Associates sold off the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $13.8 million in stock. Sara Nainzadeh’s fund, Centenus Global Management, also cut its stock, about $1.3 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Penn Virginia Corporation (NASDAQ:PVAC). These stocks are Donegal Group Inc (NASDAQ:DGICA), Ares Commercial Real Estate Corp (NYSE:ACRE), PennantPark Investment Corp. (NASDAQ:PNNT), and NRC Group Holdings Corp. (NYSE:NRCG). This group of stocks’ market values match PVAC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DGICA | 4 | 9133 | 1 |
| ACRE | 13 | 20374 | 3 |
| PNNT | 9 | 16479 | 0 |
| NRCG | 8 | 10470 | 3 |
| Average | 8.5 | 14114 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $191 million in PVAC’s case. Ares Commercial Real Estate Corp (NYSE:ACRE) is the most popular stock in this table. On the other hand Donegal Group Inc (NASDAQ:DGICA) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Penn Virginia Corporation (NASDAQ:PVAC) is more popular among hedge funds. 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 PVAC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PVAC were disappointed as the stock returned -5.2% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
