Hedge Funds Are Selling Inovalon Holdings Inc (INOV)

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a fool proof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong some times, as in the case of some of their top picks from the index like Micron and Anadarko. The data though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

Is Inovalon Holdings Inc (NASDAQ:INOV) worth your attention right now? The best stock pickers are in a bearish mood, and for the right reasons, as the shares of the company lost 25.34% value during the third quarter. The number of bullish hedge fund positions fell by 1 lately. Our team decided to uncover hedge funds that held stake in Inovalon Holdings Inc (NASDAQ:INOV), at the end of September.

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 Royal Gold, Inc USA) (NASDAQ:RGLD), WuXi PharmaTech (Cayman) Inc. (ADR) (NYSE:WX), and MPLX LP (NYSE:MPLX) to gather more data points.

According to most market participants, hedge funds are seen as underperforming, old financial tools of the past. While there are over 8000 funds in operation today, We choose to focus on the crème de la crème of this club, about 700 funds. It is estimated that this group of investors manages the lion’s share of the smart money’s total asset base, and by shadowing their highest performing equity investments, Insider Monkey has discovered many investment strategies that have historically outperformed Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, we’re going to take a peek at the fresh action encompassing Inovalon Holdings Inc (NASDAQ:INOV).

What does the smart money think about Inovalon Holdings Inc (NASDAQ:INOV)?

Heading into Q4, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 14% from the previous quarter. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, holds the most valuable position in Inovalon Holdings Inc (NASDAQ:INOV). Rock Springs Capital Management has a $14.3 million position in the stock, comprising 1.2% of its 13F portfolio. The second most bullish fund manager is Morris Mark of Mark Asset Management, with a $4.8 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Ian P. Murray’s Lanexa Global Management, Israel Englander’s Millennium Management, and Ken Griffin’s Citadel Investment Group.

Judging by the fact that Inovalon Holdings Inc (NASDAQ:INOV) has faced a falling interest from the smart money, it’s easy to see that there was a specific group of funds who sold off their positions entirely in the third quarter. At the top of the heap, Clifford Fox’s Columbus Circle Investors dumped the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth an estimated $20.1 million in stock. Peter Muller’s fund, PDT Partners, also cut its stock, about $1.2 million worth of shares. These transactions are important to note, as total hedge fund interest fell by 1 fund in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Inovalon Holdings Inc (NASDAQ:INOV). These stocks are Royal Gold, Inc USA) (NASDAQ:RGLD), WuXi PharmaTech (Cayman) Inc. (ADR) (NYSE:WX), MPLX LP (NYSE:MPLX), and American Eagle Outfitters (NYSE:AEO). This group of stocks’ market valuations are closest to Inovalon Holdings Inc (NASDAQ:INOV)’s market valuation.

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 $335 million. That figure was $32 million in Inovalon Holdings Inc (NASDAQ:INOV)’s case. American Eagle Outfitters (NYSE:AEO) is the most popular stock in this table. On the other hand, MPLX LP (NYSE:MPLX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks, Inovalon Holdings Inc (NASDAQ:INOV) is even less popular than MPLX LP (NYSE:MPLX). 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.