Hedge Funds Are Dumping HMS Holdings Corp. (HMSY)

In this article we will take a look at whether hedge funds think HMS Holdings Corp. (NASDAQ:HMSY) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

HMS Holdings Corp. (NASDAQ:HMSY) was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. HMSY has seen a decrease in support from the world’s most elite money managers recently. There were 25 hedge funds in our database with HMSY positions at the end of the previous quarter. Our calculations also showed that HMSY 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).

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.

Bruce Kovner of Caxton Associates LP

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. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the recent hedge fund action encompassing HMS Holdings Corp. (NASDAQ:HMSY).

What have hedge funds been doing with HMS Holdings Corp. (NASDAQ:HMSY)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HMSY over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, D E Shaw was the largest shareholder of HMS Holdings Corp. (NASDAQ:HMSY), with a stake worth $25.8 million reported as of the end of September. Trailing D E Shaw was Millennium Management, which amassed a stake valued at $16.8 million. Sectoral Asset Management, GLG Partners, 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 Sectoral Asset Management allocated the biggest weight to HMS Holdings Corp. (NASDAQ:HMSY), around 1.55% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, earmarking 0.69 percent of its 13F equity portfolio to HMSY.

Due to the fact that HMS Holdings Corp. (NASDAQ:HMSY) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few fund managers that decided to sell off their entire stakes last quarter. At the top of the heap, Arthur B Cohen and Joseph Healey’s Healthcor Management LP dumped the biggest position of the “upper crust” of funds monitored by Insider Monkey, worth close to $13.7 million in stock, and Mika Toikka’s AlphaCrest Capital Management was right behind this move, as the fund dumped about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 5 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as HMS Holdings Corp. (NASDAQ:HMSY) but similarly valued. These stocks are LiveRamp Holdings, Inc. (NYSE:RAMP), Piedmont Office Realty Trust, Inc. (NYSE:PDM), 1Life Healthcare, Inc. (NASDAQ:ONEM), and Bank of Hawaii Corporation (NYSE:BOH). This group of stocks’ market values match HMSY’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $78 million in HMSY’s case. Bank of Hawaii Corporation (NYSE:BOH) is the most popular stock in this table. On the other hand Piedmont Office Realty Trust, Inc. (NYSE:PDM) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks HMS Holdings Corp. (NASDAQ:HMSY) is more popular among hedge funds. 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 12.2% in 2020 through June 17th but still managed to beat the market by 14.8 percentage points. Hedge funds were also right about betting on HMSY, though not to the same extent, as the stock returned 22% in Q2 (through June 17th) and outperformed the market as well.

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