Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Penumbra Inc (NYSE:PEN) changed recently.
Penumbra Inc (NYSE:PEN) investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. PEN was in 23 hedge funds’ portfolios at the end of the third quarter of 2019. There were 19 hedge funds in our database with PEN holdings at the end of the previous quarter. Our calculations also showed that PEN 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.
Why do we pay any attention at all to hedge fund sentiment? 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.
Kris Jenner of Rock Springs Capital
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. Let’s check out the new hedge fund action encompassing Penumbra Inc (NYSE:PEN).
How have hedgies been trading Penumbra Inc (NYSE:PEN)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in PEN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Partner Fund Management was the largest shareholder of Penumbra Inc (NYSE:PEN), with a stake worth $138.5 million reported as of the end of September. Trailing Partner Fund Management was Citadel Investment Group, which amassed a stake valued at $43.6 million. Great Point Partners, Redmile Group, and Rock Springs 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 Partner Fund Management allocated the biggest weight to Penumbra Inc (NYSE:PEN), around 4.09% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, earmarking 3.71 percent of its 13F equity portfolio to PEN.
As one would reasonably expect, key money managers have been driving this bullishness. Great Point Partners, managed by Jeffrey Jay and David Kroin, created the biggest position in Penumbra Inc (NYSE:PEN). Great Point Partners had $40.3 million invested in the company at the end of the quarter. Jeremy Green’s Redmile Group also initiated a $40.1 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Steve Cohen’s Point72 Asset Management, and Peter Muller’s PDT Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Penumbra Inc (NYSE:PEN) but similarly valued. These stocks are Air Lease Corp (NYSE:AL), Highwoods Properties Inc (NYSE:HIW), Nuance Communications Inc. (NASDAQ:NUAN), and Ashland Global Holdings Inc. (NYSE:ASH). This group of stocks’ market caps resemble PEN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AL | 23 | 442179 | 5 |
| HIW | 20 | 220525 | 7 |
| NUAN | 27 | 741239 | -1 |
| ASH | 30 | 1196782 | -1 |
| Average | 25 | 650181 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $375 million in PEN’s case. Ashland Global Holdings Inc. (NYSE:ASH) is the most popular stock in this table. On the other hand Highwoods Properties Inc (NYSE:HIW) is the least popular one with only 20 bullish hedge fund positions. Penumbra Inc (NYSE:PEN) 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 PEN as the stock returned 31.5% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
