Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Is K2M Group Holdings Inc (NASDAQ:KTWO) worth your attention right now? The smart money is in an optimistic mood. The number of long hedge fund bets improved by 10 recently. Our calculations also showed that KTWO isn’t among the 30 most popular stocks among hedge funds. KTWO was in 24 hedge funds’ portfolios at the end of the third quarter of 2018. There were 14 hedge funds in our database with KTWO 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s review the latest hedge fund action encompassing K2M Group Holdings Inc (NASDAQ:KTWO).
How are hedge funds trading K2M Group Holdings Inc (NASDAQ:KTWO)?
At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 71% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in KTWO at the beginning of this year. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Sand Grove Capital Partners was the largest shareholder of K2M Group Holdings Inc (NASDAQ:KTWO), with a stake worth $50.6 million reported as of the end of September. Trailing Sand Grove Capital Partners was Water Island Capital, which amassed a stake valued at $29.2 million. Camber Capital Management, Sectoral Asset Management, and Alpine Associates were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, key hedge funds have been driving this bullishness. Sand Grove Capital Partners, managed by Simon Davies, initiated the largest position in K2M Group Holdings Inc (NASDAQ:KTWO). Sand Grove Capital Partners had $50.6 million invested in the company at the end of the quarter. John Orrico’s Water Island Capital also made a $29.2 million investment in the stock during the quarter. The following funds were also among the new KTWO investors: Robert Emil Zoellner’s Alpine Associates, Paul Glazer’s Glazer Capital, and Noam Gottesman’s GLG Partners.
Let’s now take a look at hedge fund activity in other stocks similar to K2M Group Holdings Inc (NASDAQ:KTWO). We will take a look at Natus Medical Inc (NASDAQ:BABY), Osisko Gold Royalties Ltd (NYSE:OR), SecureWorks Corp. (NASDAQ:SCWX), and USLIFE Income Fund, Inc. (NYSE:BIF). This group of stocks’ market values match KTWO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BABY | 19 | 113281 | 4 |
| OR | 10 | 18157 | 4 |
| SCWX | 8 | 32331 | 2 |
| BIF | 4 | 7593 | -2 |
| Average | 10.25 | 42841 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $210 million in KTWO’s case. Natus Medical Inc (NASDAQ:BABY) is the most popular stock in this table. On the other hand USLIFE Income Fund, Inc. (NYSE:BIF) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks K2M Group Holdings Inc (NASDAQ:KTWO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
