21 stocks small-cap funds are buying the most to bet on explosive earnings growth, according to a fintech company

  • Wilton Risenhoover says institutional ownership of a stock influences its price growth.
  • He suggests looking at whether funds are accumulating shares on a quarterly basis. 
  • Below is a list of small-cap stocks most held by funds and compiled by Fintel.

Sifting through quarterly earnings reports to determine which companies have future potential is a daunting task if you’re just one person.

Investment firms and pension funds have teams of analysts and seasoned investors who conclude a stock’s future potential based on company filings and other economic indicators pulled from real-time terminals.

Goldman Sachs releases a regular report listing the stocks most favored by hedge and mutual funds. The investment bank even has an exchange-traded fund that tracks the “very important positions” of top hedge fund managers.

But looking at mainstream stocks isn’t the only way to gain an edge on the broader stock market or to try and determine what Wall Street favors at any moment.

Fintel, a firm that aggregates data from platforms including SEC filings, S&P Capital IQ, Nasdaq, and the New York Stock Exchange, scans for additional data points. One is the US small-cap growth stocks held by funds with mandates to invest in smaller companies that are generally worth between $250 million and $2 billion. The data shows ownership trends and is pulled from 13F filings that funds submit to the Securities and Exchange Commission every quarter. 

Large funds and other institutional investors have the capacity to move a stock’s price higher when they buy. But high institutional ownership is only one part of the equation, said Wilton Risenhoover, the CEO and founder of Fintel. He suggests that investors also track whether funds are adding shares to their portfolios or if new funds are buying a stock, and then weighing those data points.

“We look at all the allocation of all the funds, and then we average them and track it on a quarter-to-quarter basis,” Risenhoover said. “And then we’re sorting by the change in the allocation. So there are really two factors that we’re looking at here: change in allocation, and percent change in total owners.”

For example, Shoals Technologies Group Inc. (​​SHLS), a solar-energy company, saw six additional funds add its stock to their portfolios in the first quarter of 2023. But it also saw a 41% increase in the number of shares held by funds, which points to more bullish sentiment.

In contrast, Halozyme Therapeutics Inc. (HALO) is the small-cap stock with the highest number of institutional funds holding its shares, per Fintel’s data. However, it also saw a 14% drop in shares held by the same group, with three funds shedding their holdings.

Below is a Fintel list of stocks held by funds with mandates to invest in small-cap companies. Each stock includes the number of small-cap funds that hold it, the change in funds that hold it, and the percentage change in shares from the previous quarter. The data is based on the prior quarter’s filings and isn’t updated in real time, meaning that some of these positions may have changed.