Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Mercury Systems Inc (NASDAQ:MRCY) was in 15 hedge funds’ portfolios at the end of the first quarter of 2019. MRCY has seen an increase in support from the world’s most elite money managers of late. There were 6 hedge funds in our database with MRCY holdings at the end of the previous quarter. Our calculations also showed that MRCY isn’t among the 30 most popular stocks among hedge funds.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a look at the latest hedge fund action encompassing Mercury Systems Inc (NASDAQ:MRCY).
How have hedgies been trading Mercury Systems Inc (NASDAQ:MRCY)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 150% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MRCY over the last 15 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Mercury Systems Inc (NASDAQ:MRCY) was held by D E Shaw, which reported holding $14.1 million worth of stock at the end of March. It was followed by Driehaus Capital with a $13.7 million position. Other investors bullish on the company included Winton Capital Management, Citadel Investment Group, and Millennium Management.
As industrywide interest jumped, some big names have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, created the biggest position in Mercury Systems Inc (NASDAQ:MRCY). Renaissance Technologies had $3.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $1.5 million investment in the stock during the quarter. The other funds with brand new MRCY positions are Phil Frohlich’s Prescott Group Capital Management, Hoon Kim’s Quantinno Capital, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now take a look at hedge fund activity in other stocks similar to Mercury Systems Inc (NASDAQ:MRCY). We will take a look at FirstService Corporation (NASDAQ:FSV), Gold Fields Limited (NYSE:GFI), Ardagh Group S.A. (NYSE:ARD), and Community Bank System, Inc. (NYSE:CBU). This group of stocks’ market caps match MRCY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FSV | 11 | 144724 | -2 |
| GFI | 10 | 208835 | 1 |
| ARD | 12 | 53581 | 2 |
| CBU | 8 | 16915 | -3 |
| Average | 10.25 | 106014 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $58 million in MRCY’s case. Ardagh Group S.A. (NYSE:ARD) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Mercury Systems Inc (NASDAQ:MRCY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on MRCY as the stock returned 6.7% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
