At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Avanos Medical, Inc. (NYSE:AVNS) has seen a decrease in support from the world’s most elite money managers of late. Our calculations also showed that avns isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
Let’s take a look at the recent hedge fund action surrounding Avanos Medical, Inc. (NYSE:AVNS).
How have hedgies been trading Avanos Medical, Inc. (NYSE:AVNS)?
Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in AVNS a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of Avanos Medical, Inc. (NYSE:AVNS), with a stake worth $15.5 million reported as of the end of September. Trailing D E Shaw was Gotham Asset Management, which amassed a stake valued at $7.4 million. Marshall Wace LLP, Millennium Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Avanos Medical, Inc. (NYSE:AVNS) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there were a few fund managers who sold off their positions entirely by the end of the third quarter. Interestingly, Robert Joseph Caruso’s Select Equity Group dumped the largest stake of the 700 funds watched by Insider Monkey, totaling about $35.7 million in stock. Brian Ashford-Russell and Tim Woolley’s fund, Polar Capital, also dumped its stock, about $16.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Avanos Medical, Inc. (NYSE:AVNS). We will take a look at Advanced Disposal Services, Inc. (NYSE:ADSW), RPC, Inc. (NYSE:RES), ABM Industries, Inc. (NYSE:ABM), and CoreCivic, Inc. (NYSE:CXW). This group of stocks’ market values resemble AVNS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADSW | 15 | 123133 | 3 |
| RES | 12 | 96642 | -3 |
| ABM | 12 | 48851 | 1 |
| CXW | 21 | 143123 | 8 |
| Average | 15 | 102937 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $45 million in AVNS’s case. CoreCivic, Inc. (NYSE:CXW) is the most popular stock in this table. On the other hand RPC, Inc. (NYSE:RES) is the least popular one with only 12 bullish hedge fund positions. Avanos Medical, Inc. (NYSE:AVNS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AVNS wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); AVNS investors were disappointed as the stock returned -7.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
