Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like ShoreTel Inc (NASDAQ:SHOR) .
Is ShoreTel Inc (NASDAQ:SHOR) an outstanding investment now? The best stock pickers are thoroughly betting on the stock. The number of bullish hedge fund bets increased by 5 lately. SHOR was in 21 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with SHOR positions at the end of the previous quarter. At the end of this article we will also compare SHOR to other stocks including ChipMOS Technologies (Bermuda) Ltd (NASDAQ:IMOS), Resources Connection, Inc. (NASDAQ:RECN), and Hemisphere Media Group Inc (NASDAQ:HMTV) to get a better sense of its popularity.
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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, let’s take a peek at the latest action regarding ShoreTel Inc (NASDAQ:SHOR).
Hedge fund activity in ShoreTel Inc (NASDAQ:SHOR)
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a gain of 31% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in SHOR at the beginning of this year. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Robert G. Moses’ RGM Capital has the most valuable position in ShoreTel Inc (NASDAQ:SHOR), worth close to $35.3 million, accounting for 4% of its total 13F portfolio. The second most bullish fund manager is Peter S. Park of Park West Asset Management, with a $29.3 million position; 2.7% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism contain Jim Simons’ Renaissance Technologies, D. E. Shaw’s D E Shaw and George McCabe’s Portolan Capital Management. We should note that RGM Capital 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.
Consequently, specific money managers have been driving this bullishness. Clearline Capital, led by Marc Majzner, created the biggest position in ShoreTel Inc (NASDAQ:SHOR). Clearline Capital had $2.4 million invested in the company at the end of the quarter. David Brown’s Hawk Ridge Management also made a $1.9 million investment in the stock during the quarter. The following funds were also among the new SHOR investors: Ken Griffin’s Citadel Investment Group, Warren Lammert’s Granite Point Capital, and Arnaud Ajdler’s Engine Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ShoreTel Inc (NASDAQ:SHOR) but similarly valued. We will take a look at ChipMOS Technologies (Bermuda) Ltd (NASDAQ:IMOS), Resources Connection, Inc. (NASDAQ:RECN), Hemisphere Media Group Inc (NASDAQ:HMTV), and Bryn Mawr Bank Corp. (NASDAQ:BMTC). This group of stocks’ market valuations resemble SHOR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMOS | 17 | 207132 | -1 |
| RECN | 16 | 63307 | 4 |
| HMTV | 9 | 57380 | -1 |
| BMTC | 11 | 43505 | 3 |
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $137 million in SHOR’s case. ChipMOS Technologies (Bermuda) Ltd (NASDAQ:IMOS) is the most popular stock in this table. On the other hand Hemisphere Media Group Inc (NASDAQ:HMTV) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks ShoreTel Inc (NASDAQ:SHOR) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None
