NEW YORK (
Hedge fund managers
rarely come up with "original" investment ideas. They have a limited number of employees and there are so many stocks to cover. Most of them invest in only a tiny fraction of all stocks in the stock market. It's not feasible for them to research each and every stock trading in the markets.
One solution is to start with a much smaller universe. They can reduce the number of stocks which need an in-depth analysis by four methods:
1. Use predetermined quantitative filters.
2. Use investment ideas pitched by independent research firms.
3. Use stocks invested by other hedge funds.
4. Follow the news, financial publications, etc. and try to create investment themes.
, your source for free
data, generally doesn't want to pay anybody for investment ideas, so we stay away from independent research firms. However, we follow insider transactions and pick potentially profitable stocks bought by insiders. That's a good starting point for an in-depth analysis. We also follow the news and use our judgment whether a particular stock, sector or theme is ripe for higher returns.
Our third approach is to follow other
hedge fund managers
and examine their stock picks. Most hedge fund managers also do this to a certain degree. They get tips from their hedge fund buddies and pay back with their own tips. We don't think there is anything wrong with this. The only problem is sometimes some trades might get really crowded.
prepared the list of top 10 stocks enormously owned by hedge funds. We require at least 70 hedge funds owning these stocks and rank them by the percent of the company owned by hedge funds (
. You might interpret this list as a "hedge fund favorite stock list" or a "hedge fund risky stock list." Clearly, hedge funds think highly of these stocks and they accumulated huge amounts of shares. However, it is also possible to see that these stocks would plunge much more than other stocks if negative news hit the company and hedge funds try to exit their positions all at once. Here are these 10 stocks enormously owned by hedge funds.