It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Horizon Technology Finance Corp (NASDAQ:HRZN).
Horizon Technology Finance Corp (NASDAQ:HRZN) has experienced an increase in hedge fund sentiment of late. Our calculations also showed that HRZN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to review the recent hedge fund action encompassing Horizon Technology Finance Corp (NASDAQ:HRZN).
Hedge fund activity in Horizon Technology Finance Corp (NASDAQ:HRZN)
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 300% from the second quarter of 2019. By comparison, 1 hedge funds held shares or bullish call options in HRZN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, John Overdeck and David Siegel’s Two Sigma Advisors has the biggest position in Horizon Technology Finance Corp (NASDAQ:HRZN), worth close to $1.4 million, amounting to less than 0.1%% of its total 13F portfolio. Coming in second is D E Shaw, led by David E. Shaw, holding a $0.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish encompass Israel Englander’s Millennium Management, Paul Marshall and Ian Wace’s Marshall Wace and . In terms of the portfolio weights assigned to each position Two Sigma Advisors allocated the biggest weight to Horizon Technology Finance Corp (NASDAQ:HRZN), around 0.0035% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, dishing out 0.0005 percent of its 13F equity portfolio to HRZN.
As aggregate interest increased, specific money managers were leading the bulls’ herd. D E Shaw, managed by David E. Shaw, initiated the most valuable position in Horizon Technology Finance Corp (NASDAQ:HRZN). D E Shaw had $0.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.1 million position during the quarter. The only other fund with a brand new HRZN position is Paul Marshall and Ian Wace’s Marshall Wace.
Let’s now review hedge fund activity in other stocks similar to Horizon Technology Finance Corp (NASDAQ:HRZN). We will take a look at Nature’s Sunshine Prod. (NASDAQ:NATR), Plymouth Industrial REIT, Inc. (NYSE:PLYM), Bassett Furniture Industries Inc. (NASDAQ:BSET), and Adaptimmune Therapeutics plc (NASDAQ:ADAP). This group of stocks’ market values match HRZN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NATR | 6 | 65705 | 0 |
| PLYM | 7 | 16015 | 5 |
| BSET | 9 | 28847 | 0 |
| ADAP | 10 | 51857 | 0 |
| Average | 8 | 40606 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $2 million in HRZN’s case. Adaptimmune Therapeutics plc (NASDAQ:ADAP) is the most popular stock in this table. On the other hand Nature’s Sunshine Prod. (NASDAQ:NATR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Horizon Technology Finance Corp (NASDAQ:HRZN) is even less popular than NATR. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on HRZN, though not to the same extent, as the stock returned 7.3% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
