Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Independence Holding Company (NYSE:IHC) the right investment to pursue these days? The smart money is buying. The number of long hedge fund positions went up by 1 in recent months. Our calculations also showed that IHC 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.
J. Carlo Cannell of Cannell Capital
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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to analyze the new hedge fund action surrounding Independence Holding Company (NYSE:IHC).
What does smart money think about Independence Holding Company (NYSE:IHC)?
Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IHC over the last 17 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Cannell Capital, managed by J. Carlo Cannell, holds the largest position in Independence Holding Company (NYSE:IHC). Cannell Capital has a $8.9 million position in the stock, comprising 2.9% of its 13F portfolio. Sitting at the No. 2 spot is Chuck Royce of Royce & Associates, with a $8.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism encompass Renaissance Technologies, Roger Ibbotson’s Zebra Capital Management and . In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to Independence Holding Company (NYSE:IHC), around 2.89% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.26 percent of its 13F equity portfolio to IHC.
Now, key money managers have been driving this bullishness. Renaissance Technologies, established the most outsized position in Independence Holding Company (NYSE:IHC). Renaissance Technologies had $0.3 million invested in the company at the end of the quarter.
Let’s now review hedge fund activity in other stocks similar to Independence Holding Company (NYSE:IHC). These stocks are CURO Group Holdings Corp. (NYSE:CURO), Revance Therapeutics Inc (NASDAQ:RVNC), Movado Group, Inc (NYSE:MOV), and Veeco Instruments Inc. (NASDAQ:VECO). This group of stocks’ market valuations are similar to IHC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CURO | 16 | 90355 | 3 |
| RVNC | 6 | 21220 | -4 |
| MOV | 10 | 27501 | -10 |
| VECO | 14 | 183411 | 3 |
| Average | 11.5 | 80622 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $18 million in IHC’s case. CURO Group Holdings Corp. (NYSE:CURO) is the most popular stock in this table. On the other hand Revance Therapeutics Inc (NASDAQ:RVNC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Independence Holding Company (NYSE:IHC) is even less popular than RVNC. 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 IHC, though not to the same extent, as the stock returned 9.5% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
