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 Sientra Inc (NASDAQ:SIEN).
Sientra Inc (NASDAQ:SIEN) investors should be aware of a decrease in hedge fund sentiment lately. SIEN was in 16 hedge funds’ portfolios at the end of September. There were 19 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 (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.
James E. Flynn of Deerfield 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. We’re going to check out the key hedge fund action regarding Sientra Inc (NASDAQ:SIEN).
Hedge fund activity in Sientra Inc (NASDAQ:SIEN)
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in SIEN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, James E. Flynn’s Deerfield Management has the number one position in Sientra Inc (NASDAQ:SIEN), worth close to $26.8 million, accounting for 1.1% of its total 13F portfolio. The second largest stake is held by Millennium Management, managed by Israel Englander, which holds a $21 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish consist of Kevin Kotler’s Broadfin Capital, Brian Ashford-Russell and Tim Woolley’s Polar Capital and J. Carlo Cannell’s Cannell Capital. In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to Sientra Inc (NASDAQ:SIEN), around 4.08% of its 13F portfolio. Broadfin Capital is also relatively very bullish on the stock, setting aside 2.4 percent of its 13F equity portfolio to SIEN.
Seeing as Sientra Inc (NASDAQ:SIEN) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few fund managers that slashed their positions entirely heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth about $4.4 million in stock. Renaissance Technologies, also sold off its stock, about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sientra Inc (NASDAQ:SIEN) but similarly valued. We will take a look at Howard Bancorp Inc (NASDAQ:HBMD), Red River Bancshares, Inc. (NASDAQ:RRBI), Landec Corporation (NASDAQ:LNDC), and Telaria, Inc. (NYSE:TLRA). This group of stocks’ market values match SIEN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HBMD | 3 | 16817 | 1 |
| RRBI | 3 | 5155 | 0 |
| LNDC | 13 | 46350 | 2 |
| TLRA | 17 | 47266 | 3 |
| Average | 9 | 28897 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $103 million in SIEN’s case. Telaria, Inc. (NYSE:TLRA) is the most popular stock in this table. On the other hand Howard Bancorp Inc (NASDAQ:HBMD) is the least popular one with only 3 bullish hedge fund positions. Sientra Inc (NASDAQ:SIEN) 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 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 SIEN as the stock returned 32.1% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
