In the more than 70 years since hedge funds were first brought to market by Alfred Winslow Jones in 1949, they’ve become ubiquitous in the investing industry.
Not so much as an investment vehicle for investors like most of us, after all the minimum investments typically range from $100,000 to $2 million, but if you follow Wall Street you’re likely familiar with hedge funds and the impact they can have on stock prices. Case in point: Hedge funds currently own about 7% of the stock market.
Coincidentally, that $100,000 minimum investment is the same amount used by Jones to establish the first hedge fund for wealthy investors.
However, it is possible to see what these well-heeled institutions are buying, just in case you want to add a few of their picks to your portfolio.
Now, before you do that, you should know that according to BarclayHedge, the average hedge fund generated net annualized returns of 7.2%. That’s about two percentage points below the historical average of the S&P 500 index.
Of course, some do better than others, and many do very well, as you can see from the following chart of 5-star-rated funds:
Top 20 Hedge Funds by 3-Year Annualized Weighted Return
As of the beg. of Q1 2023
| Fund Manager | Hedge Fund | 3-Year Performance | Ann. 3Y Return | AUM | Turnover |
| Robert Lynch | Aristeia Capital | 250.83% | 51.95% | $ 4.97B | 28.83% |
| Michael Burry | Scion Asset Management | 191.07% | 42.78% | $ 46.54M | 33.33% |
| William Harnisch | Peconic Partners | 176.17% | 40.30% | $ 1.54B | 20.59% |
| Jason Wild | JW Asset Management | 133.09% | 32.59% | $ 243.05M | 22.22% |
| Vince Maddi | SIR Capital Management | 126.15% | 31.26% | $ 950.80M | 37.33% |
| Murray Stahl | Horizon Kinetics Asset Management | 113.77% | 28.82% | $ 6.05B | 13.07% |
| Bruce Berkowitz | Fairholme Capital Management | 110.50% | 28.16% | $ 1.20B | 7.69% |
| Robert Adelman | Avoro Capital Advisors | 106.29% | 27.30% | $ 6.69B | 24.36% |
| Karthik Sarma | SRS Investment Management | 96.20% | 25.19% | $ 5.53B | 21.43% |
| Jos Shaver | Electron Capital Partners | 93.16% | 24.54% | $ 2.24B | 23.53% |
| Eric Bannasch | Cadian Capital Management | 85.77% | 22.93% | $ 1.38B | 29.46% |
| Ed Bosek | Beaconlight Capital | 85.59% | 22.89% | $ 170.92M | 33.93% |
| Bob Robotti | Robotti Robert | 84.73% | 22.70% | $ 501.78M | 11.19% |
| Lauren Wolfe & Christian Asmar | Impactive Capital LP | 83.47% | 22.42% | $ 2.18B | 33.33% |
| Clinton Murray | Lodge Hill Capital | 82.61% | 22.23% | $ 269.91M | 24.07% |
| Till Bechtolsheimer | Arosa Capital Management | 73.88% | 20.25% | $ 322.35M | 35.56% |
| Arne Alsin | Worm Capital LLC | 73.06% | 20.06% | $ 66.15M | 0.00% |
| Patrick Degorce | Theleme Partners | 70.91% | 19.56% | $ 2.60B | 30.00% |
| Gregory Bylinsky | Bandera Partners | 70.26% | 19.41% | $ 211.20M | 12.50% |
| David Kim | Ghost Tree Capital | 69.11% | 19.14% | $ 234.22M | 21.43% |
Source: hedgefollow.com
I like to see what these folks are buying, from time to time.
As you might expect, many are buying the typical tech stocks, like Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Google (GOOG), Meta Platforms (META), and Alphabet (GOOGL).
But recently, they also have purchased shares in Tesla (TSLA), Berkshire Hathaway (BRK.A and BRK.B), and Charles Schwab (SCHW).
Those shares are all fine and good, and most of us should have a few of those stocks in our portfolios.
But personally, I like to look off the beaten path to see which smaller-cap companies the best hedge funds are buying. I reviewed about 25 such stocks and came up with the following three that look interesting.
See if they might whet your appetite!
Turtle Beach Corporation (HEAR), analyst ranking 1.8, no dividend
Turtle Beach is a leading gaming headset and audio accessory brand, operating in North America, Europe, the Middle East, and the Asia Pacific.
The company also offers gaming accessories, such as keyboards and mice, under the ROCCAT brand. Turtle Beach Corporation recently announced that its board has authorized an extension of the share repurchase program for an additional two years, now running until April 9, 2025. The program allows the company to repurchase up to $25 million worth of its common stock.
Analysts have a Buy rating on shares of Turtle Beach, with a price target of 16 in anticipation of the company’s Q1 results (which will be announced May 4). Wall Street expects a 15% increase in full-year sales and a $20 million improvement in adjusted EBITDA.
MGM Resorts International (MGM), analyst ranking 2.1, dividend yield 0.02%
MGM Resorts International owns and operates casino, hotel, and entertainment resorts in the United States and Macau.
The company walloped earnings estimates, posting quarterly earnings of $0.44 per share, beating the analyst’s estimate of $0.04 per share. Revenues beat by 10.22%, coming in at $3.87 billion for the quarter ended March 2023. Much of the good news was due to incredible boosts to its Macau gaming.
Gaming in Macau, industry-wide, was up 450% over last year, to $1.82 billion — the highest level since before the coronavirus pandemic.
Over the last four quarters, the company has surpassed consensus EPS estimates two times.
Glass House Brands Inc. (GLASF), analyst ranking 1, no dividend
Glass House Brands cultivates, manufactures, and distributes cannabis bulk flowers and trims to wholesalers in California. It also provides raw cannabis, cannabis oil, and cannabis consumer goods to third-party retail stores.
This small-cap stock is one of the fastest-growing, vertically integrated cannabis companies in the U.S., and it’s adding to its repertoire, completing its acquisition of the Natural Healing Center (NHC) dispensary located in Turlock, California. Note that it is a very small-cap stock and speculative.
Happy hedge-fund hunting!
