Between June 25 and October 30th the Russell 2000 ETF (IWM) has lagged the larger S&P 500 ETF (SPY) by more than 14 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller cap stocks than the normal investor, and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of ProShares UltraShort Nasdaq Biotech (NASDAQ:BIS) and see how the stock is affected by the recent hedge fund activity.
ProShares UltraShort Nasdaq Biotech was in four hedge funds’ portfolios at the end of September. BIS has experienced a decrease in activity from the world’s largest hedge funds recently, since there were 5 funds in our database with BIS holdings at the end of the previous quarter. 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 Monroe Capital Corp (NASDAQ:MRCC), Aspen Aerogels Inc (NYSE:ASPN), and Maxwell Technologies Inc. (NASDAQ:MXWL) to gather more data points.
At the moment there are many metrics that market participants use to assess stocks. A duo of the most useful metrics are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the elite hedge fund managers can trounce the broader indices by a significant margin (see the details here).
With all of this in mind, let’s take a look at the fresh action surrounding ProShares UltraShort Nasdaq Biotech (NASDAQ:BIS).
What have hedge funds been doing with ProShares UltraShort Nasdaq Biotech (NASDAQ:BIS)?
Heading into Q4, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund holdings data compiled by Insider Monkey, James Dondero’s Highland Capital Management had the most valuable position in ProShares UltraShort Nasdaq Biotech (NASDAQ:BIS), worth close to $14.7 million, accounting for 0.4% of its total 13F portfolio. The second most bullish hedge fund manager is Ardsley Partners, led by Philip Hempleman, holding a $12.5 million position; 3% of its 13F portfolio is allocated to the company. Other peers with similar optimism include Ken Griffin’s Citadel Investment Group, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Beech Hill Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified BIS as a viable investment and initiated a position in the stock.
Let’s go over hedge fund activity in other stocks similar to ProShares UltraShort Nasdaq Biotech (NASDAQ:BIS). We will take a look at Monroe Capital Corp (NASDAQ:MRCC), Aspen Aerogels Inc (NYSE:ASPN), Maxwell Technologies Inc. (NASDAQ:MXWL), and HORSEHEAD HOLDING CORP. (NASDAQ:ZINC). This group of stocks’ market values are closest to BIS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRCC | 4 | 1847 | 3 |
| ASPN | 4 | 9894 | 2 |
| MXWL | 8 | 18169 | -4 |
| ZINC | 11 | 43067 | -4 |
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. At the same time, hedge funds amassed $31 million worth of ProShares UltraShort Nasdaq Biotech (NASDAQ:BIS)’s shares at the end of September, but the number of funds holding shares is below average. This does not necessarily mean that BIS is not a good stock to buy and a more detailed analysis might reveal that it has some potential to gain ground. However, based on our extensive studies, we consider that the best approach is to focus on analyzing stocks that hedge funds are collectively the most fond of and, in this casse, HORSEHEAD HOLDING CORP. (NASDAQ:ZINC) may be a better alternative.