Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is AtriCure Inc. (NASDAQ:ATRC) the right investment to pursue these days? Money managers are turning less bullish. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that ATRC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Justin John Ferayorni of Tamarack Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the fresh hedge fund action surrounding AtriCure Inc. (NASDAQ:ATRC).
What have hedge funds been doing with AtriCure Inc. (NASDAQ:ATRC)?
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ATRC over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Tamarack Capital Management, managed by Justin John Ferayorni, holds the most valuable position in AtriCure Inc. (NASDAQ:ATRC). Tamarack Capital Management has a $21.2 million position in the stock, comprising 5.5% of its 13F portfolio. The second most bullish fund manager is Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, which holds a $11.2 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise Noam Gottesman’s GLG Partners, Nathan Fischel’s DAFNA Capital Management and James E. Flynn’s Deerfield Management. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to AtriCure Inc. (NASDAQ:ATRC), around 5.52% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, designating 2.99 percent of its 13F equity portfolio to ATRC.
Seeing as AtriCure Inc. (NASDAQ:ATRC) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few funds who sold off their entire stakes in the third quarter. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management cut the largest position of the 750 funds tracked by Insider Monkey, worth close to $3 million in stock, and Paul Hondros’s AlphaOne Capital Partners was right behind this move, as the fund dropped about $1.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to AtriCure Inc. (NASDAQ:ATRC). We will take a look at Fitbit Inc (NYSE:FIT), Sapiens International Corporation N.V. (NASDAQ:SPNS), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), and Griffon Corporation (NYSE:GFF). This group of stocks’ market values resemble ATRC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FIT | 9 | 69023 | -4 |
| SPNS | 8 | 28907 | 0 |
| DRNA | 20 | 247941 | 4 |
| GFF | 13 | 131406 | 4 |
| Average | 12.5 | 119319 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $88 million in ATRC’s case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Sapiens International Corporation N.V. (NASDAQ:SPNS) is the least popular one with only 8 bullish hedge fund positions. AtriCure Inc. (NASDAQ:ATRC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ATRC as the stock returned 19.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
