There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze KCAP Financial Inc (NASDAQ:KCAP).
KCAP Financial Inc (NASDAQ:KCAP) investors should be aware of an increase in hedge fund interest lately. KCAP was in 6 hedge funds’ portfolios at the end of September. There were 3 hedge funds in our database with KCAP positions at the end of the second quarter. At the end of this article we will also compare KCAP to other stocks including Osiris Therapeutics, Inc. (NASDAQ:OSIR), Gencor Industries, Inc. (DE) (NASDAQ:GENC), and Adverum Biotechnologies Inc (NASDAQ:ADVM) 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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How have hedgies been trading KCAP Financial Inc (NASDAQ:KCAP)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 100% increase from one quarter earlier. Of the funds tracked by Insider Monkey, DG Capital Management, led by Dov Gertzulin, holds the most valuable position in KCAP Financial Inc (NASDAQ:KCAP). DG Capital Management has a $3.8 million position in the stock, comprising 8% of its 13F portfolio. On DG Capital Management’s heels is Two Sigma Advisors, led by John Overdeck and David Siegel, which holds a $0.5 million position. Other members of the smart money that are bullish comprise Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, D E Shaw, one of the biggest hedge funds in the world, and Israel Englander’s Millennium Management. 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-micro-cap stocks.
With general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Algert Coldiron Investors established the largest new position in KCAP Financial Inc (NASDAQ:KCAP). Algert Coldiron Investors had $0.3 million invested in the company at the end of the quarter. Millennium Management also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock was Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks similar to KCAP Financial Inc (NASDAQ:KCAP). These stocks are Osiris Therapeutics, Inc. (NASDAQ:OSIR), Gencor Industries, Inc. (DE) (NASDAQ:GENC), Adverum Biotechnologies Inc (NASDAQ:ADVM), and Ocular Therapeutix Inc (NASDAQ:OCUL). All of these stocks’ market caps are similar to KCAP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OSIR | 7 | 4438 | -2 |
| GENC | 4 | 6637 | 0 |
| ADVM | 11 | 15276 | -4 |
| OCUL | 6 | 6414 | -5 |
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 $8 million. That figure was $5 million in KCAP’s case. Adverum Biotechnologies Inc (NASDAQ:ADVM) is the most popular stock in this table. On the other hand Gencor Industries, Inc. (DE) (NASDAQ:GENC) is the least popular one with only 4 bullish hedge fund positions. KCAP Financial Inc (NASDAQ:KCAP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ADVM might be a better candidate to consider taking a long position in.
Disclosure: None
