Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.
HC2 Holdings Inc (NYSEMKT:HCHC) investors should be aware of an increase in hedge fund sentiment lately. There were 10 hedge funds in our database with HCHC holdings at the end of September. At the end of this article we will also compare HCHC to other stocks including Sterling Construction Company, Inc. (NASDAQ:STRL), Lifetime Brands Inc (NASDAQ:LCUT), and Asterias Biotherapeutics Inc (NYSEMKT:AST) to get a better sense of its popularity.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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Now, let’s take a peek at the recent action surrounding HC2 Holdings Inc (NYSEMKT:HCHC).
What does the smart money think about HC2 Holdings Inc (NYSEMKT:HCHC)?
Heading into the fourth quarter of 2016, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in HCHC heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Wingspan Investment Management, led by Buckley Ratchford, holds the biggest position in HC2 Holdings Inc (NYSEMKT:HCHC). Wingspan Investment Management has a $12.3 million position in the stock, comprising 5.7% of its 13F portfolio. The second largest stake is held by Warren Lichtenstein of Steel Partners, with a $5.5 million position; 1.7% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass John Fichthorn’s Dialectic Capital Management, Dov Gertzulin’s DG Capital Management and Renaissance Technologies, one of the largest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As aggregate interest increased, specific money managers have jumped into HC2 Holdings Inc (NYSEMKT:HCHC) headfirst. Renaissance Technologies, led by Jim Simons, created the biggest position in HC2 Holdings Inc (NYSEMKT:HCHC). Renaissance Technologies had $0.3 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new HCHC investors: Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and Israel Englander’s Millennium Management.
Let’s also examine hedge fund activity in other stocks similar to HC2 Holdings Inc (NYSEMKT:HCHC). We will take a look at Sterling Construction Company, Inc. (NASDAQ:STRL), Lifetime Brands Inc (NASDAQ:LCUT), Asterias Biotherapeutics Inc (NYSEMKT:AST), and Autobytel Inc. (NASDAQ:ABTL). All of these stocks’ market caps match HCHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STRL | 9 | 10127 | 1 |
| LCUT | 3 | 3696 | -1 |
| AST | 4 | 16133 | 4 |
| ABTL | 13 | 37674 | 0 |
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $20 million in HCHC’s case. Autobytel Inc. (NASDAQ:ABTL) is the most popular stock in this table. On the other hand Lifetime Brands Inc (NASDAQ:LCUT) is the least popular one with only 3 bullish hedge fund positions. HC2 Holdings Inc (NYSEMKT:HCHC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ABTL might be a better candidate to consider taking a long position in.
Disclosure: None