Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
Sientra Inc (NASDAQ:SIEN) investors should pay attention to an increase in hedge fund sentiment in recent months. SIEN was in 19 hedge funds’ portfolios at the end of June. There were 14 hedge funds in our database with SIEN holdings at the end of the previous quarter. Our calculations also showed that SIEN isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
UIn addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let’s take a peek at the key hedge fund action encompassing Sientra Inc (NASDAQ:SIEN).
Hedge fund activity in Sientra Inc (NASDAQ:SIEN)
At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SIEN over the last 16 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Sientra Inc (NASDAQ:SIEN) was held by Deerfield Management, which reported holding $28.7 million worth of stock at the end of March. It was followed by Millennium Management with a $19.4 million position. Other investors bullish on the company included Polar Capital, Broadfin Capital, and Endurant Capital Management.
As aggregate interest increased, some big names have been driving this bullishness. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, established the largest position in Sientra Inc (NASDAQ:SIEN). Polar Capital had $12.3 million invested in the company at the end of the quarter. Kevin Kotler’s Broadfin Capital also initiated a $8.6 million position during the quarter. The following funds were also among the new SIEN investors: J. Carlo Cannell’s Cannell Capital, John W. Rende’s Copernicus Capital Management, and Renaissance Technologies.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sientra Inc (NASDAQ:SIEN) but similarly valued. These stocks are Republic First Bancorp, Inc. (NASDAQ:FRBK), SunOpta, Inc. (NASDAQ:STKL), The First Bancorp, Inc. (NASDAQ:FNLC), and Cutera, Inc. (NASDAQ:CUTR). All of these stocks’ market caps are similar to SIEN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FRBK | 6 | 4889 | 0 |
| STKL | 14 | 112503 | 3 |
| FNLC | 1 | 5979 | 0 |
| CUTR | 10 | 65276 | -4 |
| Average | 7.75 | 47162 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $101 million in SIEN’s case. SunOpta, Inc. (NASDAQ:STKL) is the most popular stock in this table. On the other hand The First Bancorp, Inc. (NASDAQ:FNLC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Sientra Inc (NASDAQ:SIEN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on SIEN, though not to the same extent, as the stock returned 5.2% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
