Hedge fund stocks are less about high returns these days

Hedge fund stocks are less about high returns these days

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Hedge fund stocks don't beat the market like they used to, so funds are closing or lowering expectations.

Despite having the largest number of assets under management in history, hedge funds haven't fared well in 2014 thanks to another spell of middling returns. Hedge funds have now underperformed the S&P 500 (SPX) for six years straight. In 2013, hedge funds returned an average of 7.4 percent compared to the index's 29.60 percent. This year they're on track to return just 2 percent while the S&P 500 is likely to return over 13 percent. 

Returns aren't the only issue hedge funds are struggling with—they're also having a hard time staying open. Bloomberg reports that 461 hedge funds shuttered in the first half of the year, bringing closures to their highest levels since 2009. 

There are a few—emphasis on few—hedge funds that are thriving in the current market. Bill Ackman's Pershing Square raised $2.7 billion in its October IPO on the Amsterdam Stock Exchange (though the actual IPO was underwhelming). The following month, after Botox-maker Allergan (AGN) agreed to sell itself to Actavis (ACT), Ackman revealed that Pershing stands to make $6 billion by the deal's close thanks to the fund's 9.7 percent stake in Allergan. Through November 25, Pershing had delivered a 42 percent return to its investors.

However, as Barron's points out, high returns seem to be a thing of the past for hedge funds. Citing Institutional Investor's Steve Taub, the Focus on Funds blog notes that fund managers and investors only expect to see annualized returns between 4 and 6 percent. Funds are placing less emphasis on high risk and beating the market, instead choosing to look for investments that could fare well over the long-term. Tellingly, a recent report revealed that only 7 percent of hedge fund investors picked the funds "as a result of their high returns expectations."

Below is a list of nine hedge fund stocks that have seen a significant increase in institutional buying in the current quarter. Specifically, net institutional purchases comprised 5 percent or more of each stock's share float during the period, which shows that fund managers are bullish about the stock's prospects.

Each stock also boast a return on assets (ROA) and return on investment (ROI) greater than the industry average on a trailing twelve month (TTM) basis. ROA lets investors know how skilled management is at using a company's assets to generate earnings while ROI breaks down the profitability of investment by showing how much money it will gain or lose. Since more hedge fund managers are moving towards a long-term investment strategy, a performance metric like ROA is quite useful when evaluating corporate health. 

Click on the interactive chart to view data over time. 

1. Ambarella Inc. (AMBA, Earnings, Analysts, Financials): Develops semiconductor processing solutions for video that enable high-definition (HD) video capture, sharing, and display worldwide. Market cap at $1.70B, most recent closing price at $55.94.

Net institutional purchases in the current quarter at 2.7M shares, which represents about 9.4% of the company's float of 28.72M shares. The two top holders of the stock are FMR, LLC with 1.8 million shares and Lord Abbett & Co with 882,400 shares.

TTM Return on Assets at 18.08% vs. an industry average at 9.82%. TTM Return on Investment at 21.48% vs. an industry average at 12.00%.

 

2. First Cash Financial Services Inc. (FCFS, Earnings, Analysts, Financials): Operates retail-based pawn and consumer finance stores in the United States and Mexico. Market cap at $1.59B, most recent closing price at $56.15.

Net institutional purchases in the current quarter at 1.4M shares, which represents about 5.06% of the company's float of 27.66M shares. The two top holders of the stock are Thornburg Investment Management Inc. with 2 million shares and The Vanguard Group, Inc. with 1.8 million shares.

TTM Return on Assets at 12.24% vs. an industry average at 2.98%. TTM Return on Investment at 13.09% vs. an industry average at 6.09%.

 

3. Federated National Holding Company (FNHC, Earnings, Analysts, Financials): Engages in insurance underwriting, distribution, and claims processing in the United States. Market cap at $359.50M, most recent closing price at $25.66.

Net institutional purchases in the current quarter at 2.4M shares, which represents about 18.71% of the company's float of 12.83M shares. The two top holders of the stock are Dimensional Fund Advisors LP with 711,400 shares and Renaissance Technologies, LLC with 582,700 shares.

TTM Return on Assets at 8.20% vs. an industry average at 2.14%. TTM Return on Investment at 22.56% vs. an industry average at 8.14%.

 

4. Gold Resource Corp (GOGO, Earnings, Analysts, Financials): Engages in the exploration for and production of gold, silver, precious metals, and base metals, including copper, lead, and zinc primarily in Mexico. Market cap at $1.41B, most recent closing price at $16.53.

Net institutional purchases in the current quarter at 6.6M shares, which represents about 13.9% of the company's float of 47.49M shares. The two top holders of the stock are Northern Trust Corporation with 8 million shares and Wellington Management Company, LLP with 7.2 million shares. 

TTM Return on Assets at 8.50% vs. an industry average at -3.30%. TTM Return on Investment at 10.15% vs. an industry average at -0.83%.

 

5. Leju Holdings Limited (LEJU, Earnings, Analysts, Financials): Provides online-to-offline (O2O) real estate services in the People's Republic of China. Market cap at $1.47B, most recent closing price at $11.04.

Net institutional purchases in the current quarter at 1.8M shares, which represents about 11.24% of the company's float of 16.02M shares. The two top holders of the stock are FIL LTD with 1 million shares and LBN Advisers LTD with 869,900 shares.

TTM Return on Assets at 14.08% vs. an industry average at 6.64%. TTM Return on Investment at 20.09% vs. an industry average at 10.00%.

 

6. LRAD Corporation (LRAD, Earnings, Analysts, Financials): Designs, develops, and commercializes sound reproduction technologies and products primarily in North America, Europe, and Asia. Market cap at $84.10M, most recent closing price at $2.53.

Net institutional purchases in the current quarter at 1.4M shares, which represents about 6.06% of the company's float of 23.10M shares. The two top holders of the stock are Marxe, Austin W. & Greenhouse, David M. with 4.7 million shares and Manatuck Hill Partners, LLC with 2.2 million shares.

TTM Return on Assets at 11.01% vs. an industry average at 5.23%. TTM Return on Investment at 12.42% vs. an industry average at 7.31%.

 

7. Macquarie Infrastructure Company LLC (MIC, Earnings, Analysts, Financials): Operates in a diversified group of infrastructure businesses in the United States. Market cap at $4.92B, most recent closing price at $69.33.

Net institutional purchases in the current quarter at 10.7M shares, which represents about 16.91% of the company's float of 63.29M shares. The two top holders of the stock are MSDC Management, LP with 4 million shares and Marcato Capital Management LLC with 3.9 million shares.

TTM Return on Assets at 29.88% vs. an industry average at 16.95%. TTM Return on Investment at 33.22% vs. an industry average at 19.09%.

 

8. Nu Skin Enterprises Inc. (NUS, Earnings, Analysts, Financials): Develops and distributes anti-aging personal care products and nutritional supplements worldwide. Market cap at $2.73B, most recent closing price at $46.01.

Net institutional purchases in the current quarter at 4.8M shares, which represents about 8.38% of the company's float of 57.29M shares. The two top holders of the stock are Capital World Investors with 3.9 million shares and Royce & Associates, LLC with 3.7 million shares.

TTM Return on Assets at 16.14% vs. an industry average at 2.99%. TTM Return on Investment at 24.59% vs. an industry average at 19.56%.

 

9. Shire plc (SHPG, Earnings, Analysts, Financials): Researches, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products. Market cap at $41.94B, most recent closing price at $212.88.

Net institutional purchases in the current quarter at 22.1M shares, which represents about 12.38% of the company's float of 178.45M shares. The two top holders of the stock are Paulson & Company, Inc. with 9 million shares and Adage Capital Partners GP L.L.C. with 3.3 million shares. 

TTM Return on Assets at 17.51% vs. an industry average at 7.97%. TTM Return on Investment at 23.27% vs. an industry average at 12.64%.

 

 

(List compiled by Mary-Lynn Cesar. Institutional, ROA, and ROI data sourced from Fidelity. Monthly return data sourced from Zacks Investment Research. All other data sourced from finviz.)

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