Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Hedge fund interest in SeaSpine Holdings Corporation (NASDAQ:SPNE) 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 Marker Therapeutics, Inc. (NASDAQ:MRKR), Iteris Inc (NYSE:ITI), and ASA Gold and Precious Metals Limited (NYSE:ASA) to gather more data points. Our calculations also showed that SPNE 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.
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 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 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.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the fresh hedge fund action regarding SeaSpine Holdings Corporation (NASDAQ:SPNE).
How have hedgies been trading SeaSpine Holdings Corporation (NASDAQ:SPNE)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPNE over the last 17 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in SeaSpine Holdings Corporation (NASDAQ:SPNE) was held by Hawk Ridge Management, which reported holding $6.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $5.6 million position. Other investors bullish on the company included Millennium Management, Winton Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Hawk Ridge Management allocated the biggest weight to SeaSpine Holdings Corporation (NASDAQ:SPNE), around 1.34% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to SPNE.
Since SeaSpine Holdings Corporation (NASDAQ:SPNE) has faced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies that slashed their positions entirely last quarter. It’s worth mentioning that Chuck Royce’s Royce & Associates sold off the largest stake of the 750 funds monitored by Insider Monkey, totaling about $0.2 million in stock. Cliff Asness’s fund, AQR Capital Management, also sold off its stock, about $0.2 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as SeaSpine Holdings Corporation (NASDAQ:SPNE) but similarly valued. These stocks are Marker Therapeutics, Inc. (NASDAQ:MRKR), Iteris Inc (NYSE:ITI), ASA Gold and Precious Metals Limited (NYSE:ASA), and BRT Apartments Corp. (NYSE:BRT). This group of stocks’ market values are similar to SPNE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRKR | 9 | 20168 | 0 |
| ITI | 12 | 27224 | -3 |
| ASA | 3 | 14873 | 0 |
| BRT | 5 | 11630 | 1 |
| Average | 7.25 | 18474 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $14 million in SPNE’s case. Iteris Inc (NYSE:ITI) is the most popular stock in this table. On the other hand ASA Gold and Precious Metals Limited (NYSE:ASA) is the least popular one with only 3 bullish hedge fund positions. SeaSpine Holdings Corporation (NASDAQ:SPNE) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on SPNE, though not to the same extent, as the stock returned 8.4% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
