How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Brightcove Inc (NASDAQ:BCOV) and determine whether hedge funds had an edge regarding this stock.
Hedge fund interest in Brightcove Inc (NASDAQ:BCOV) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that BCOV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 Whitestone REIT (NYSE:WSR), Ares Commercial Real Estate Corp (NYSE:ACRE), and Intelligent Systems Corporation (NYSE:INS) to gather more data points. Our calculations also showed that BCOV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s review the recent hedge fund action encompassing Brightcove Inc (NASDAQ:BCOV).
How have hedgies been trading Brightcove Inc (NASDAQ:BCOV)?
At the end of June, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in BCOV a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Trigran Investments was the largest shareholder of Brightcove Inc (NASDAQ:BCOV), with a stake worth $33.8 million reported as of the end of September. Trailing Trigran Investments was Tenzing Global Investors, which amassed a stake valued at $29.6 million. Archon Capital Management, Renaissance Technologies, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Brightcove Inc (NASDAQ:BCOV), around 14.51% of its 13F portfolio. Trigran Investments is also relatively very bullish on the stock, earmarking 6.63 percent of its 13F equity portfolio to BCOV.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: AQR Capital Management. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Caxton Associates LP).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Brightcove Inc (NASDAQ:BCOV) but similarly valued. We will take a look at Whitestone REIT (NYSE:WSR), Ares Commercial Real Estate Corp (NYSE:ACRE), Intelligent Systems Corporation (NYSE:INS), ProQR Therapeutics NV (NASDAQ:PRQR), Urovant Sciences Ltd. (NASDAQ:UROV), Organigram Holdings Inc. (NASDAQ:OGI), and ORBCOMM Inc (NASDAQ:ORBC). This group of stocks’ market values match BCOV’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WSR | 9 | 15422 | 4 |
| ACRE | 10 | 35946 | 0 |
| INS | 8 | 45439 | -1 |
| PRQR | 7 | 53620 | -1 |
| UROV | 7 | 43137 | 0 |
| OGI | 5 | 3467 | -2 |
| ORBC | 19 | 57764 | 1 |
| Average | 9.3 | 36399 | 0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $117 million in BCOV’s case. ORBCOMM Inc (NASDAQ:ORBC) is the most popular stock in this table. On the other hand Organigram Holdings Inc. (NASDAQ:OGI) is the least popular one with only 5 bullish hedge fund positions. Brightcove Inc (NASDAQ:BCOV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BCOV is 78.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on BCOV as the stock returned 29.9% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
