We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Hortonworks Inc (NASDAQ:HDP) and what that likely means for the prospects of the company and its stock.
At the end of September, 14 funds tracked by Insider Monkey held shares of Hortonworks Inc (NASDAQ:HDP). The company registered an increase in popularity during the third quarter, as there had been 10 funds bullish on HDP at the end of June. 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 Editas Medicine Inc (NASDAQ:EDIT), Live Oak Bancshares Inc (NASDAQ:LOB), and Bristow Group Inc (NYSE:BRS) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Now, we’re going to take a peek at the key action encompassing Hortonworks Inc (NASDAQ:HDP).
How are hedge funds trading Hortonworks Inc (NASDAQ:HDP)?
As stated earlier, heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, up by 40% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HDP over the last five quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Passport Capital, led by John Burbank, holds the biggest position in Hortonworks Inc (NASDAQ:HDP). Passport Capital has a $40.9 million position in the stock, comprising 0.8% of its 13F portfolio. The second largest stake is held by Ken Griffin’s Citadel Investment Group, which disclosed a $17.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock.
As industrywide interest jumped, key money managers have jumped into Hortonworks Inc (NASDAQ:HDP) headfirst. Portolan Capital Management, led by George McCabe, assembled the biggest position in Hortonworks Inc (NASDAQ:HDP). Portolan Capital Management had $5.9 million invested in the company at the end of the quarter. Amish Mehta’s SQN Investors also initiated a $5 million position during the quarter. The other funds with new positions in the stock are Daniel S. Och’s OZ Management, Paul Hondros’s AlphaOne Capital Partners, and Dmitry Balyasny’s Balyasny Asset Management. We should note that SQN Investors is 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.
Let’s now review hedge fund activity in other stocks similar to Hortonworks Inc (NASDAQ:HDP). These stocks are Editas Medicine Inc (NASDAQ:EDIT), Live Oak Bancshares Inc (NASDAQ:LOB), Bristow Group Inc (NYSE:BRS), and Preferred Bank (NASDAQ:PFBC). This group of stocks’ market valuations are closest to HDP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EDIT | 10 | 54080 | 4 |
| LOB | 4 | 7326 | -2 |
| BRS | 16 | 244657 | 3 |
| PFBC | 9 | 50330 | 0 |
As you can see these stocks had an average of 10 investors with bullish positions and the average amount invested in these stocks was $89 million. That figure was $91 million in HDP’s case. Bristow Group Inc (NYSE:BRS) is the most popular stock in this table. On the other hand Live Oak Bancshares Inc (NASDAQ:LOB) is the least popular one with only four bullish hedge fund positions. Hortonworks Inc (NASDAQ:HDP) 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 Bristow Group Inc (NYSE:BRS) might be a better candidate to consider taking a long position in.
Disclosure: none
