Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Addus Homecare Corporation (NASDAQ:ADUS).
Addus Homecare Corporation (NASDAQ:ADUS) has seen an increase in enthusiasm from smart money of late. ADUS was in 17 hedge funds’ portfolios at the end of June. There were 14 hedge funds in our database with ADUS positions at the end of the previous quarter. Our calculations also showed that ADUS isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the latest hedge fund action surrounding Addus Homecare Corporation (NASDAQ:ADUS).
What have hedge funds been doing with Addus Homecare Corporation (NASDAQ:ADUS)?
Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in ADUS a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Addus Homecare Corporation (NASDAQ:ADUS), which was worth $24.3 million at the end of the second quarter. On the second spot was Deerfield Management which amassed $19 million worth of shares. Moreover, Point72 Asset Management, Marshall Wace LLP, and Polar Capital were also bullish on Addus Homecare Corporation (NASDAQ:ADUS), allocating a large percentage of their portfolios to this stock.
Consequently, key money managers were leading the bulls’ herd. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, initiated the most outsized position in Addus Homecare Corporation (NASDAQ:ADUS). Polar Capital had $8.8 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Addus Homecare Corporation (NASDAQ:ADUS) but similarly valued. We will take a look at SecureWorks Corp. (NASDAQ:SCWX), H&E Equipment Services, Inc. (NASDAQ:HEES), Middlesex Water Company (NASDAQ:MSEX), and Mercer International Inc. (NASDAQ:MERC). This group of stocks’ market valuations resemble ADUS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SCWX | 9 | 19866 | -3 |
| HEES | 12 | 37700 | -1 |
| MSEX | 9 | 49252 | 0 |
| MERC | 16 | 159892 | 2 |
| Average | 11.5 | 66678 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $103 million in ADUS’s case. Mercer International Inc. (NASDAQ:MERC) is the most popular stock in this table. On the other hand SecureWorks Corp. (NASDAQ:SCWX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Addus Homecare Corporation (NASDAQ:ADUS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ADUS, though not to the same extent, as the stock returned 5.8% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
