Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Phreesia, Inc. (NYSE:PHR).
Phreesia, Inc. (NYSE:PHR) was in 9 hedge funds’ portfolios at the end of September. PHR has seen an increase in support from the world’s most elite money managers lately. There were 0 hedge funds in our database with PHR holdings at the end of the previous quarter. Our calculations also showed that PHR 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.
To most stock holders, hedge funds are assumed to be worthless, outdated investment tools of years past. While there are more than 8000 funds with their doors open today, We hone in on the bigwigs of this group, approximately 750 funds. These hedge fund managers handle the majority of all hedge funds’ total capital, and by monitoring their highest performing equity investments, Insider Monkey has discovered a number of investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Kris Jenner of Rock Springs Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a look at the fresh hedge fund action surrounding Phreesia, Inc. (NYSE:PHR).
What does smart money think about Phreesia, Inc. (NYSE:PHR)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9 from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PHR over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Rock Springs Capital Management held the most valuable stake in Phreesia, Inc. (NYSE:PHR), which was worth $8.8 million at the end of the third quarter. On the second spot was Driehaus Capital which amassed $7.4 million worth of shares. Citadel Investment Group, Tamarack Capital Management, and Engle Capital 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 Tamarack Capital Management allocated the biggest weight to Phreesia, Inc. (NYSE:PHR), around 1.26% of its 13F portfolio. Engle Capital is also relatively very bullish on the stock, setting aside 0.71 percent of its 13F equity portfolio to PHR.
Now, key hedge funds have been driving this bullishness. Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, assembled the biggest position in Phreesia, Inc. (NYSE:PHR). Rock Springs Capital Management had $8.8 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $7.4 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Justin John Ferayorni’s Tamarack Capital Management, and Jeffrey Hoffner’s Engle Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Phreesia, Inc. (NYSE:PHR) but similarly valued. We will take a look at Community Healthcare Trust Inc (NYSE:CHCT), Hecla Mining Company (NYSE:HL), Phibro Animal Health Corp (NASDAQ:PAHC), and PPDAI Group Inc. (NYSE:PPDF). This group of stocks’ market values match PHR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHCT | 10 | 88796 | 2 |
| HL | 10 | 22102 | 2 |
| PAHC | 17 | 52455 | 1 |
| PPDF | 8 | 11005 | 1 |
| Average | 11.25 | 43590 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $34 million in PHR’s case. Phibro Animal Health Corp (NASDAQ:PAHC) is the most popular stock in this table. On the other hand PPDAI Group Inc. (NYSE:PPDF) is the least popular one with only 8 bullish hedge fund positions. Phreesia, Inc. (NYSE:PHR) 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 PHR as the stock returned 16% 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.