Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Quidel Corporation (NASDAQ:QDEL).
Is Quidel Corporation (NASDAQ:QDEL) ready to rally soon? Investors who are in the know are getting less optimistic. The number of bullish hedge fund bets fell by 4 in recent months. Our calculations also showed that QDEL 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.
Why do we pay any attention at all to hedge fund sentiment? 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. Let’s take a look at the key hedge fund action encompassing Quidel Corporation (NASDAQ:QDEL).
What have hedge funds been doing with Quidel Corporation (NASDAQ:QDEL)?
At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards QDEL over the last 16 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Mario Gabelli’s GAMCO Investors has the biggest position in Quidel Corporation (NASDAQ:QDEL), worth close to $27 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Marshall Wace LLP, led by Paul Marshall and Ian Wace, holding a $17.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of D. E. Shaw’s D E Shaw, Noam Gottesman’s GLG Partners and Renaissance Technologies.
Due to the fact that Quidel Corporation (NASDAQ:QDEL) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds that slashed their positions entirely last quarter. Intriguingly, Ken Griffin’s Citadel Investment Group sold off the largest investment of the 750 funds watched by Insider Monkey, valued at close to $21.4 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $3.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Quidel Corporation (NASDAQ:QDEL) but similarly valued. We will take a look at II-VI, Inc. (NASDAQ:IIVI), CareTrust REIT Inc (NASDAQ:CTRE), Transportadora de Gas del Sur SA (NYSE:TGS), and Medpace Holdings, Inc. (NASDAQ:MEDP). This group of stocks’ market values are closest to QDEL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IIVI | 21 | 110008 | -1 |
| CTRE | 20 | 127935 | 4 |
| TGS | 9 | 28061 | -3 |
| MEDP | 15 | 194424 | -9 |
| Average | 16.25 | 115107 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $92 million in QDEL’s case. II-VI, Inc. (NASDAQ:IIVI) is the most popular stock in this table. On the other hand Transportadora de Gas del Sur SA (NYSE:TGS) is the least popular one with only 9 bullish hedge fund positions. Quidel Corporation (NASDAQ:QDEL) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on QDEL, though not to the same extent, as the stock returned 3.4% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
