We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Natus Medical Incorporated (NASDAQ:NTUS) and compare it against similarly valued peers like Kenon Holdings Ltd. (NYSE:KEN), Enviva Partners, LP (NYSE:EVA), Qutoutiao Inc. (NASDAQ:QTT), and Piper Jaffray Companies (NYSE:PJC).
Natus Medical Incorporated (NASDAQ:NTUS) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. Hedge fund sentiment in NTUS hit its all time high 6 months ago. We saw two quarters of decline since then. Our calculations also showed that NTUS 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.
Paul Tudor Jones of Tudor Investment Corp
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the recent hedge fund action encompassing Natus Medical Incorporated (NASDAQ:NTUS).
How have hedgies been trading Natus Medical Incorporated (NASDAQ:NTUS)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NTUS over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Impax Asset Management held the most valuable stake in Natus Medical Incorporated (NASDAQ:NTUS), which was worth $18.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $14.5 million worth of shares. Diamond Hill Capital, Rutabaga Capital Management, and Renaissance Technologies 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 Voce Capital allocated the biggest weight to Natus Medical Incorporated (NASDAQ:NTUS), around 3.79% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, earmarking 2.73 percent of its 13F equity portfolio to NTUS.
Judging by the fact that Natus Medical Incorporated (NASDAQ:NTUS) has experienced falling interest from hedge fund managers, it’s safe to say that there is a sect of hedge funds that elected to cut their entire stakes in the third quarter. Intriguingly, Jeffrey Smith’s Starboard Value LP dumped the largest position of the 750 funds followed by Insider Monkey, comprising an estimated $14.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $3.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Natus Medical Incorporated (NASDAQ:NTUS). We will take a look at Kenon Holdings Ltd. (NYSE:KEN), Enviva Partners, LP (NYSE:EVA), Qutoutiao Inc. (NASDAQ:QTT), and Piper Jaffray Companies (NYSE:PJC). This group of stocks’ market valuations resemble NTUS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KEN | 1 | 1950 | 0 |
| EVA | 4 | 92763 | -3 |
| QTT | 5 | 12863 | -2 |
| PJC | 9 | 49369 | 0 |
| Average | 4.75 | 39236 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $83 million in NTUS’s case. Piper Jaffray Companies (NYSE:PJC) is the most popular stock in this table. On the other hand Kenon Holdings Ltd. (NYSE:KEN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Natus Medical Incorporated (NASDAQ:NTUS) 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. Unfortunately NTUS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NTUS were disappointed as the stock returned 0.5% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.