We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded HMS Holdings Corp. (NASDAQ:HMSY) based on those filings.
Is HMS Holdings Corp. (NASDAQ:HMSY) worth your attention right now? Hedge funds are taking an optimistic view. The number of long hedge fund bets went up by 1 recently. Our calculations also showed that HMSY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). HMSY was in 25 hedge funds’ portfolios at the end of December. There were 24 hedge funds in our database with HMSY holdings at the end of the previous quarter.
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the recent hedge fund action regarding HMS Holdings Corp. (NASDAQ:HMSY).
What does smart money think about HMS Holdings Corp. (NASDAQ:HMSY)?
At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in HMSY a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in HMS Holdings Corp. (NASDAQ:HMSY). Arrowstreet Capital has a $24.5 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is D E Shaw, managed by D. E. Shaw, which holds a $21.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass Ken Griffin’s Citadel Investment Group, Arthur B Cohen and Joseph Healey’s Healthcor Management LP and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Sectoral Asset Management allocated the biggest weight to HMS Holdings Corp. (NASDAQ:HMSY), around 1.33% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, setting aside 0.49 percent of its 13F equity portfolio to HMSY.
Now, key hedge funds were breaking ground themselves. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, established the most valuable position in HMS Holdings Corp. (NASDAQ:HMSY). Healthcor Management LP had $13.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $3.6 million position during the quarter. The other funds with brand new HMSY positions are Israel Englander’s Millennium Management, Hoon Kim’s Quantinno Capital, and Jinghua Yan’s TwinBeech Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as HMS Holdings Corp. (NASDAQ:HMSY) but similarly valued. We will take a look at Natera Inc (NASDAQ:NTRA), Stitch Fix, Inc. (NASDAQ:SFIX), Allegheny Technologies Incorporated (NYSE:ATI), and Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA). All of these stocks’ market caps are closest to HMSY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTRA | 33 | 325243 | 9 |
| SFIX | 28 | 299710 | 5 |
| ATI | 27 | 146160 | 5 |
| IBA | 3 | 43174 | -1 |
| Average | 22.75 | 203572 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $138 million in HMSY’s case. Natera Inc (NASDAQ:NTRA) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. HMS Holdings Corp. (NASDAQ:HMSY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on HMSY, though not to the same extent, as the stock returned -19.9% during the first two and a half months of 2020 (through March 25th) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
