Did Hedge Funds Make The Right Call On Syneos Health, Inc. (SYNH) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Syneos Health, Inc. (NASDAQ:SYNH) and determine whether hedge funds skillfully traded this stock.

Is Syneos Health, Inc. (NASDAQ:SYNH) a good stock to buy now? Money managers were betting on the stock. The number of long hedge fund positions improved by 2 recently. Our calculations also showed that SYNH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). SYNH was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with SYNH positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to take a peek at the recent hedge fund action surrounding Syneos Health, Inc. (NASDAQ:SYNH).

What does smart money think about Syneos Health, Inc. (NASDAQ:SYNH)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in SYNH a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of Syneos Health, Inc. (NASDAQ:SYNH), with a stake worth $34.6 million reported as of the end of September. Trailing Citadel Investment Group was Cardinal Capital, which amassed a stake valued at $27.6 million. Millennium Management, D E Shaw, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to Syneos Health, Inc. (NASDAQ:SYNH), around 1.36% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, earmarking 1.02 percent of its 13F equity portfolio to SYNH.

As one would reasonably expect, specific money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, created the biggest position in Syneos Health, Inc. (NASDAQ:SYNH). Holocene Advisors had $6.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $4.9 million position during the quarter. The other funds with brand new SYNH positions are Robert B. Gillam’s McKinley Capital Management, Peter Muller’s PDT Partners, and Joel Greenblatt’s Gotham Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Syneos Health, Inc. (NASDAQ:SYNH) but similarly valued. We will take a look at The Mosaic Company (NYSE:MOS), 51job, Inc. (NASDAQ:JOBS), Teck Resources Ltd (NYSE:TECK), and Churchill Downs Incorporated (NASDAQ:CHDN). This group of stocks’ market values resemble SYNH’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $132 million in SYNH’s case. Churchill Downs Incorporated (NASDAQ:CHDN) is the most popular stock in this table. On the other hand 51job, Inc. (NASDAQ:JOBS) is the least popular one with only 9 bullish hedge fund positions. Syneos Health, Inc. (NASDAQ:SYNH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on SYNH as the stock returned 47.8% during the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.