Published on 15 Jan 2023 on Insider Monkey via Yahoo Finance

13 Cash-Rich Penny Stocks Hedge Funds Are Buying

In this article, we will take a look at the 13 cash-rich penny stocks hedge funds are buying. To see more such companies, go directly to 5 Cash-Rich Penny Stocks Hedge Funds Are Buying.

Amid the widespread stock market bloodbath we saw in 2022, investors are avoiding risky investment vehicles like micro-cap companies or penny stocks. However, as several analysts predict a possible market rebound near the end of 2023 or 2024, some experts believe now could be the right time to pile into risky stocks that have solid fundamentals or growth catalysts. A report by Oberweis Asset Management said that given the risks related to micro-cap investing, many small-cap fund managers have started to avoid investing in the sub-$1.5 billion spectrum. The report says that in 2011, an average small-cap manager allocated about 57% to their portfolio to companies with market caps below $1.5 billion. By 2021 that figure reached below 14%. The report also claimed that micro-cap managers generate higher returns than traditional small-cap managers over longer periods of time. The report also added that “contrary to popular belief,” volatility is not higher for micro-cap stocks when compared to small-cap stocks.

The report also said that allocating a certain percentage of your portfolios to micro-cap companies can increase risk-adjusted returns of your investments. That’s because micro-cap companies aren’t strongly related to US equities, foreign currencies, global market movements or bonds. Perhaps they are too small to be affected by macro movements. Investors can take advantage of this phenomenon and invest in solid penny stocks that have a potential to grow in the long run.