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 pSivida Corp. (NASDAQ:PSDV), and what that likely means for the prospects of the company and its stock.
Hedge fund interest in pSivida Corp. (NASDAQ:PSDV) shares was flat during the third quarter. This is usually a negative indicator. 6 hedge funds that we track owned the stock on September 30, same as on June 30. 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 TESSCO Technologies, Inc. (NASDAQ:TESS), Aradigm Corporation (NASDAQ:ARDM), and ReneSola Ltd. (ADR) (NYSE:SOL) 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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What have hedge funds been doing with pSivida Corp. (NASDAQ:PSDV)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the second quarter of 2016. By comparison, 9 hedge funds held shares or bullish call options in PSDV heading into this year, which has since fallen by 33%. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Perceptive Advisors, led by Joseph Edelman, holds the number one position in pSivida Corp. (NASDAQ:PSDV). Perceptive Advisors has a $7.7 million position in the stock. On Perceptive Advisors’ heels is North Run Capital, led by Thomas Ellis and Todd Hammer, which holds a $5 million position. Remaining hedge funds and institutional investors with similar optimism consist of James E. Flynn’s Deerfield Management, Renaissance Technologies, one of the largest hedge funds in the world, and Hal Mintz’s Sabby Capital. 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.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions either. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s check out hedge fund activity in other stocks similar to pSivida Corp. (NASDAQ:PSDV). These stocks are TESSCO Technologies, Inc. (NASDAQ:TESS), Aradigm Corporation (NASDAQ:ARDM), ReneSola Ltd. (ADR) (NYSE:SOL), and Medallion Financial Corp (NASDAQ:MFIN). This group of stocks’ market caps match PSDV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TESS | 3 | 13571 | 0 |
| ARDM | 3 | 10117 | -1 |
| SOL | 2 | 8226 | -2 |
| MFIN | 7 | 3439 | 1 |
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $20 million in PSDV’s case. Medallion Financial Corp (NASDAQ:MFIN) is the most popular stock in this table. On the other hand ReneSola Ltd. (ADR) (NYSE:SOL) is the least popular one with only 2 bullish hedge fund positions. pSivida Corp. (NASDAQ:PSDV) 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 currently like more. In this regard MFIN might be a better candidate to consider taking a long position in.
Disclosure: None
