The ten most underrated hedge funds are not famous. But the managers running these funds have consistently generated exceptional returns despite (or maybe because) they fly under the radar. The stock picks of the managers on this list have handily outperformed most of the “wizards of finance” Wall Street gushes over.
Investors seeking highly profitable investment ideas would be well served to study the 13F and other filings of these elite funds.
WhaleWisdom.com compiles data on the hedge fund reports within the site most visited by investors. Essentially, one can see which hedge funds are most popular with investors who use WhaleWisdom. We analyzed this data, along with performance data for 5 and 10-year 13F portfolio returns, to identify the most underrated hedge funds.
For our analysis, the historical performance of hedge funds is based on the 13F filings submitted quarterly by large investors. 13F’s disclose long holdings only, so the returns experienced by investors in the actual fund would differ from the long-only 13F portfolios. Equal-weight positions are taken in a fund’s top twenty holdings and rebalanced quarterly.
So, without further adieu, here are the top ten most underrated hedge funds:
5 year annualized performance 17.38%. 5 year performance rank #19. 10 year performance annualized 13.28%. 10 year rank #103. Popularity Rank #408.
New York City-based S Squared Technology, as it’s name suggests, focuses on the technology sector. The hedge fund is owned by Kenneth Goldblatt, who has served as CIO and portfolio manager of the $206M fund since 1993.
Since 2010, the fund’s 13F stock portfolio has returned 17.38%, ranking #19 among all funds. And the fund’s 10 year average return of 13.28% isn’t too shabby either. S Squared focuses on small and micro caps. Here were the fund’s top 5 positions as of March 31.
5 year annualized performance 19.24%. 5 year performance rank #10. 10 year performance annualized 13.49%. 10 year rank #93. Popularity Rank #169.
Great Point was founded in 2003 in Greenwich, Connecticut by Dr. Jeffrey R. Jay,
M.D. and Mr. David E. Kroin. The fund manages $2.86B in hedge funds, managed accounts and private equity funds. $957M was reported in managed 13F securities as of Q2.
According to Great Point’s ADV, the fund pursues “a bottom-up research-driven approach to investing in the securities of undervalued, publicly traded health care companies…Small and mid-cap stocks comprise the majority of the Hedge Funds’ long exposure.”
Despite consistently good stock-picking results over the last decade, the fund is not very popular among investors in the WhaleWisdom database. Great Point’s weighted 13F portfolio is up 24.11% over the last year.
5 year annualized performance 15.03%. 5 year performance rank #25. 10 year performance annualized 17.33%. 10 year rank #21. Popularity Rank #298.
Minneapolis Riverbridge Partners was formed in 1987 by CIO Mark A. Thompson, and Portfolio Manager Rick D. Moulton. The fund recently had $4.78B in managed 13F long securities.
From the firm’s ADV:
Riverbridge believes earnings power determines the value of a franchise. We focus on companies that are building their earnings power and building the intrinsic value of the company over long periods of time. Our investment strategy bridges human insight with data analysis to identify enduring businesses that demonstrate the ability to produce a sustainable high return on invested capital. The Riverbridge Investment Team seeks to invest in companies that possess all five building blocks of our philosophy:
-Sound Culture & Management
-Strong Unit Growth
-Strategic Market Position
-Internally Financed Growth
5 year annualized performance 19.5%. Five year performance rank #9. 10 year annualized performance 15.29%. 10 year performance rank #51. Popularity Rank #431.
The managers and principal owners of Crosslink LLC are Michael J. Stark, Eric J. Chin, and David R. Silverman. As of December 31, 2019, Crosslink had total discretionary assets under management of approximately $2.4 billion, including $347M in 13F securities.
Crosslink Capital’s focus is information technology.
5 year annualized performance 21.47%. Five year performance rank #5. 10 year annualized performance 18.58%. 10 year performance rank #13. Popularity Rank #278.
Another Greenwich-based fund, Night Owl manages $299M in long securities. Founded in 1993, the principal owners of the company are John Kim and Eileen Ohnell.
Night Owl’s equal-weighted one year return is 24.16%.
From Night Owl’s ADV:
Night Owl focuses on identifying companies with superior long-term earnings growth potential. When evaluating companies, we spend our time forecasting earnings power 3-5 years into the future instead of predicting earnings for the next quarter or year. We take this long-term view because the value of a stock depends far more on a company’s future cash flows than on its current earnings.
Night Owl hones in on industries and companies that are experiencing secular tailwinds or transformations that allow us to develop a high level of confidence in our ability to forecast their futures. We often find companies that meet this threshold when there is a systemic change in a business or industry with clear beneficiaries.
The fund searches for superior businesses with proven business models that have unique enduring franchises with sustainable competitive advantages. These businesses must have attractive growth opportunities – we look for companies that are capable of growing their intrinsic value for a number of years. Finally, we want our companies to have disciplined management teams that allocate capital wisely.
5 year annualized performance 15.00%. 5 year performance rank #43. 10 year performance annualized 17.03%. 10 year rank #27. Popularity Rank #911.
One can only wonder why the investing public overlooks Pier Capital. Its popularity rank of 911 makes it the most obscure fund among the top ten most underrated hedge funds.
Pier is a “100% management owned by a team of eight members, with no single owner holding 25% or more of the ownership or control of the firm.” Alexander Yakirevich is the firm’s President and CIO and is responsible for the day-to-day operations of Pier Capital, LLC.
Pier has a small-cap focus.
5 year annualized performance 15.67%. Five year performance rank #30. 10 year annualized performance 20.72%. 10 year performance rank #5. Popularity Rank #161.
Robert Moses started Naples-based RGM Capital in 2003, and since then has generated great returns from his long portfolio, despite garnering limited notoriety. Tech-focused RGM’s largest holding is Nice Ltd Adr ADR, comprising 8.7% of the fund’s $1.3B 13F portfolio as of Q2 2020.
5 year annualized performance 23.3%. Five year performance rank #4. 10 year annualized performance 18.59%. 10 year performance rank #12. Popularity Rank #217.
Menlo Park-based Glynn Capital was founded by CEO John W. Glynn in 1974. The firm had AUM of 1.29B and $533M of 13F long securities at the end of Q1 2020.
Methods of Analysis and Investment Strategies from the firm’s ADV.
Once the team has identified a potential investment, employees conduct a fundamental research process, meeting with some or all of the following: the company’s management team, investors, customers, suppliers, competitors, partners, and others. The investment team begins to evaluate if the company satisfies its investment criteria. The Firm seeks to invest in companies with a large market opportunity; a high-quality management team that can attract and retain talent; an attractive businesses model that can produce high levels of operating cash flow; and distinct competitive advantages that are durable in nature. This analysis considers qualitative and quantitative factors that GCM believes influence the company’s long-term potential.
After the Firm has qualitatively determined that it would like to be a long-term shareholder of the business, the investment team builds a valuation model based on the body of research compiled to determine, in the Firm’s view, the fair market value for a company. Such models typically evaluate the downside, upside, and base case of the business to determine whether the investment as proposed provides a return that meets GCM’s underwriting guidelines.
5 year annualized performance 18.64%. Five year performance rank #12. 10 year annualized performance 16.81%. 10 year performance rank #29. Popularity Rank #263.
With $17.5B in long securities and $35.5B in AUM, Kayne Anderson Rudnick is the largest fund among our most underrated hedge funds. The firm was founded in 1984 by John Anderson (a Forbes 400 billionaire and the benefactor of UCLA’s Anderson School of Management). Despite the stellar performance of its long-only portfolios, and even though the firm has received many accolades in recent years, Kayne Anderson Rudnick is hardly a household name in the world of finance. This is possibly because there is no one “star” among the many portfolio managers at the firm. Kayne Anderson Rudnick Investment Management is owned by Virtus Investment Partners, Inc. Douglas Foreman is the firm’s Chief Investment Officer.
5 year annualized performance 20.14%. Five year performance rank #8. 10 year annualized performance 17.35%. 10 year performance rank #20. Popularity Rank #566.
Spencer Waxman founded $861M Shannon River Management in 2003. His fund’s #566 popularity rank at WhaleWisdom seems almost hard to believe given the fund’s track record. But despite flying under the radar, his fund’s long portfolio has easily outperformed the over-hyped Wall Street titans.
Like most of the top ten most underrated hedge funds, Shannon River is focused on smaller companies. “We feel the risk-reward is so much more attractive in small- and mid-cap stocks, or those with a market value of $1 billion to $10 billion. Being smaller, they have more identifiable catalysts and inflection points that are under-appreciated or misunderstood,” Waxman told Bloomberg in 2019.
Waxman’s top long position is the New York Times (NYT). Here are Shannon River’s top 13F holdings:
From Shannon River’s ADV, here are company characteristics Spencer Waxman is looking for in his fund’s “priority investment opportunities.”
- trading at compelling valuations;
- a core management team with proven success in related businesses;
- recurring revenue and customer bases from which to grow;
- strong industry reputations and the potential to achieve leadership positions in their industries;
- situated in markets that have high growth potential and significant barriers to entry; and
- restructuring/divesting money from losing businesses to focus on core operations.
Here is Shannon River Management’s 10 year performance vs the S&P 500.
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