The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Benefitfocus Inc (NASDAQ:BNFT), and what that likely means for the prospects of the company and its stock.
Hedge fund interest in Benefitfocus Inc (NASDAQ:BNFT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Qualys Inc (NASDAQ:QLYS), TowneBank (NASDAQ:TOWN), and iKang Healthcare Group Inc (ADR) (NASDAQ:KANG) to gather more data points.
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If you’d ask most stock holders, hedge funds are seen as unimportant, outdated investment tools of years past. While there are greater than 8000 funds trading at present, we look at the moguls of this club, about 700 funds. These hedge fund managers orchestrate bulk of all hedge funds’ total capital, and by tracking their best picks, Insider Monkey has revealed numerous investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points annually for a decade in their back tests.
With all of this in mind, let’s take a peek at the new action surrounding Benefitfocus Inc (NASDAQ:BNFT).
How have hedgies been trading Benefitfocus Inc (NASDAQ:BNFT)?
At the end of the third quarter, a total of an 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, flat over the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, GMT Capital, managed by Thomas E. Claugus, holds the number one position in Benefitfocus Inc (NASDAQ:BNFT). GMT Capital has a $5.3 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $4.3 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions consist of Drew Cupps’s Cupps Capital Management, Phil Frohlich’s Prescott Group Capital Management, and Glenn Russell Dubin’s Highbridge Capital Management.
Seeing as Benefitfocus Inc (NASDAQ:BNFT) has faced a declination in interest from the smart money, we can see that there is a sect of hedge funds who were dropping their positions entirely heading into Q4. At the top of the heap, Renaissance Technologies dumped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $1.3 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also said goodbye to its stock, about $0.2 million worth of shares. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Benefitfocus Inc (NASDAQ:BNFT) but similarly valued. We will take a look at Qualys Inc (NASDAQ:QLYS), TowneBank (NASDAQ:TOWN), iKang Healthcare Group Inc (ADR) (NASDAQ:KANG), and Bob Evans Farms Inc (NASDAQ:BOBE). This group of stocks’ market caps is similar to Benefitfocus Inc (NASDAQ:BNFT)’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QLYS | 18 | 54963 | 5 |
| TOWN | 8 | 36119 | 0 |
| KANG | 8 | 38770 | -5 |
| BOBE | 22 | 238940 | 4 |
As you can see, these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $19 million in Benefitfocus Inc (NASDAQ:BNFT)’s case. Bob Evans Farms Inc (NASDAQ:BOBE) is the most popular stock in this table. On the other hand, TowneBank (NASDAQ:TOWN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks, Benefitfocus Inc (NASDAQ:BNFT) is even less popular than TowneBank (NASDAQ:TOWN). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.