Smart Money Cautiously Optimistic of Liquidity Services, Inc. (LQDT)

Between June 25 and October 30, the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 14 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor, and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Liquidity Services, Inc. (NASDAQ:LQDT) and how the stock was traded by hedge funds of late.

Liquidity Services, Inc. (NASDAQ:LQDT) has seen an increase in hedge fund sentiment in recent months. Liquidity Services, Inc. was in 17 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with Liquidity Services, Inc. positions at the end of the previous quarter. At the end of this article we will also compare Liquidity Services, Inc. to other stocks including Attunity Ltd (NASDAQ:ATTU), Atlas Financial Holdings Inc (NASDAQ:AFH), and Miller Industries, Inc. (NYSE:MLR) to get a better sense of its popularity.

In the eyes of most investors, hedge funds are assumed to be slow, outdated financial vehicles of the past. While there are more than 8,000 funds with their doors open today, we choose to focus on the bigwigs of this group, around 700 funds. These investment experts shepherd most of the hedge fund industry’s total asset base, and by tracking their unrivaled investments, Insider Monkey has determined various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Keeping this in mind, let’s take a look at the key action surrounding Liquidity Services, Inc. (NASDAQ:LQDT).

How are hedge funds trading Liquidity Services, Inc. (NASDAQ:LQDT)?

Heading into Q4, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 6% rise from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or had already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies holds the most valuable position in Liquidity Services, Inc. (NASDAQ:LQDT). Renaissance Technologies has a $5 million position in the stock, comprising less than 0.1% of its 13F portfolio. Coming in second is Roumell Asset Management, led by Jim Roumell, holding a $2.7 million position; 5.4% of its 13F portfolio is allocated to the stock. Other professional investment firms that are bullish contain Paul Marshall and Ian Wace’s Marshall Wace LLP, D E Shaw, and Israel Englander’s Millennium Management.

As industrywide interest jumped, key investment firms have been driving this bullishness. Roumell Asset Management established the largest position in Liquidity Services, Inc. (NASDAQ:LQDT). Marshall Wace LLP also initiated a $2.6 million position during the quarter. The only other fund with a brand new Liquidity Services, Inc. position is Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s go over hedge fund activity in other stocks similar to Liquidity Services, Inc. (NASDAQ:LQDT). We will take a look at Attunity Ltd (NASDAQ:ATTU), Atlas Financial Holdings Inc (NASDAQ:AFH), Miller Industries, Inc. (NYSE:MLR), and Quotient Ltd (NASDAQ:QTNT). All of these stocks’ market caps resemble Liquidity Services, Inc.’s market cap.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $21 million in Liquidity Services, Inc.’s case. Attunity Ltd (NASDAQ:ATTU) is the most popular stock in this table. On the other hand Miller Industries, Inc. (NYSE:MLR) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Liquidity Services, Inc. (NASDAQ:LQDT) is more popular among hedge funds, although the amount of money invested in it is below average. 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.