Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Stereotaxis Inc (NYSE:STXS).
Is Stereotaxis Inc (NYSE:STXS) a splendid investment today? The best stock pickers are getting more bullish. The number of long hedge fund bets advanced by 6 recently. Our calculations also showed that STXS 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Nathan Fischel of DAFNA Capital Management
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. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the new hedge fund action encompassing Stereotaxis Inc (NYSE:STXS).
What does smart money think about Stereotaxis Inc (NYSE:STXS)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 600% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards STXS over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Stereotaxis Inc (NYSE:STXS) was held by DAFNA Capital Management, which reported holding $48 million worth of stock at the end of September. It was followed by Arbiter Partners Capital Management with a $16.4 million position. Other investors bullish on the company included Opaleye Management, Redmile Group, and GMT Capital. In terms of the portfolio weights assigned to each position DAFNA Capital Management allocated the biggest weight to Stereotaxis Inc (NYSE:STXS), around 18.06% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, dishing out 5.17 percent of its 13F equity portfolio to STXS.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Arbiter Partners Capital Management, managed by Paul J. Isaac, established the biggest position in Stereotaxis Inc (NYSE:STXS). Arbiter Partners Capital Management had $16.4 million invested in the company at the end of the quarter. James A. Silverman’s Opaleye Management also initiated a $14.3 million position during the quarter. The other funds with brand new STXS positions are Jeremy Green’s Redmile Group, Thomas E. Claugus’s GMT Capital, and Israel Englander’s Millennium Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Stereotaxis Inc (NYSE:STXS) but similarly valued. We will take a look at First Business Financial Services Inc (NASDAQ:FBIZ), Americas Gold and Silver Corporation (NYSE:USAS), Galectin Therapeutics Inc. (NASDAQ:GALT), and Entegra Financial Corp (NASDAQ:ENFC). All of these stocks’ market caps resemble STXS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FBIZ | 3 | 6962 | 1 |
| USAS | 3 | 1836 | 1 |
| GALT | 5 | 332 | 1 |
| ENFC | 6 | 18780 | 1 |
| Average | 4.25 | 6978 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $91 million in STXS’s case. Entegra Financial Corp (NASDAQ:ENFC) is the most popular stock in this table. On the other hand First Business Financial Services Inc (NASDAQ:FBIZ) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Stereotaxis Inc (NYSE:STXS) is more popular among hedge funds. 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. Hedge funds were also right about betting on STXS as the stock returned 34.7% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.