Hedge Funds were major buyers of micro-caps in the 2nd quarter.

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credit to http://401kcalculator.org
Source: 401kcalculator.org

Whether they’re called penny stocks, micro-caps, OTC stocks or “lottery tickets,” low-priced, illiquid stocks of small companies have a bad reputation with many investors. Unquestionably micro-cap stocks can be illiquid, risky and highly speculative. Nonetheless, Hedge Funds can and do hold lots of micro-caps.

If we define micro-caps as stocks with less than $250 million in market cap, then at the 2nd quarter’s end there were 1857 micro-caps  held by institutions in the WhaleWisdom data base.   Many of these securities do not fit the common notion of penny stocks — there are small banks, illiquid ETFs, REITs, closed-end funds, biotech stocks and myriad other kinds of companies in the micro-cap universe. In the 2nd quarter, a total of $95.7 billion of 13F micro-cap holdings were disclosed by institutional investors.

So hedge funds and other large managers are major investors in micro-caps.  Why? Because despite the increased risk, the returns on small companies can be great. The “small firm effect,” whereby small market cap stocks outperform larger companies, is widely documented. Whatever the reason — because micro-caps fly under the Wall Street radar, or because of their greater financial leverage, or because small cap insiders have more “skin in the game,” there are major opportunities in the micro-cap space.

A great way to discover micro-cap investment ideas is by following which small stocks the smart money hedge funds are accumulating. Here are the micro-cap stocks with the largest 13F increases in Q2, based on the following criteria:

  1. Market cap under $250 million
  2. At least four 13F holdings in Q2 2018.
  3. Change in #funds disclosing a position was greater than 50%.
  4. Change in 13F market cap was greater than 50%.

Do your homework before buying these stocks. They might be no better than lottery tickets, or ten baggers waiting to happen. Many of them have spiked recently.

Micro-cap stocks with notable 13F increases – 2nd quarter 2018.

Name Ticker Sector Industry # Funds Held By Price Market Cap %Change Filers Quarter QoQ %Change in 13F Market Cap
BIOSIG TECHGS BSGM HEALTH CARE HEALTH CARE SUPPLIES 4 2.74 71,621,400 300.00 Q2 2018 759.09
ZOMEDICA PHARMACEUTICALS ZOM HEALTH CARE PHARMACEUTICALS 36 2.15 200,799,000 227.27 Q2 2018 2178.00
CV SCIENCES, INC. CVSI REAL ESTATE REAL ESTATE MANAGEMENT & DEVELOPMENT 6 6.61 147,535,478 200.00 Q2 2018 67.39
ACM RESEARCH ACMR INDUSTRIALS DISTRIBUTORS 34 12.75 130,159,800 183.33 Q2 2018 80.86
ASPEN GROUP INC. ASPU INDUSTRIALS COMMERCIAL SERVICES & SUPPLIES 19 7.39 132,120,000 171.43 Q2 2018 197.46
GALMED PHARMACTL GLMD HEALTH CARE BIOTECHNOLOGY & LIFE SCIENCES 43 11.45 183,736,000 126.32 Q2 2018 591.08
TAPIMMUNE INC TPIV HEALTH CARE BIOTECHNOLOGY & LIFE SCIENCES 27 7.79 100,240,900 107.69 Q2 2018 1129.90
ATTUNITY LTD. ATTU INFORMATION TECHNOLOGY SOFTWARE 48 18.96 240,675,300 71.43 Q2 2018 124.74
ALPHATEC HOLDINGS ATEC HEALTH CARE HEALTH CARE SUPPLIES 40 3.56 75,900,600 66.67 Q2 2018 83.82
CELSIUS HOLDINGS CELH ENERGY OIL & GAS PRODUCERS 43 4.59 211,462,000 65.38 Q2 2018 239.88
RF INDUSTRIES LTD RFIL INFORMATION TECHNOLOGY ELECTRONIC EQUIPMENT 29 10.25 65,032,500 61.11 Q2 2018 131.38
BIOLIFE SOLUTION BLFS HEALTH CARE HEALTH CARE SUPPLIES 49 19.75 161,451,500 58.06 Q2 2018 466.05

Source: WhaleWisdom.com