Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 Balchem Corporation (NASDAQ:BCPC).
Is Balchem Corporation (NASDAQ:BCPC) undervalued? The smart money is reducing their bets on the stock. The number of long hedge fund bets decreased by 2 lately. Our calculations also showed that BCPC 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In the eyes of most investors, hedge funds are perceived as underperforming, outdated investment vehicles of the past. While there are over 8000 funds in operation at the moment, Our researchers look at the leaders of this group, around 750 funds. It is estimated that this group of investors handle the majority of the smart money’s total capital, and by tracking their unrivaled equity investments, Insider Monkey has revealed various investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Matthew Hulsizer of PEAK6 Capital
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. Let’s go over the key hedge fund action regarding Balchem Corporation (NASDAQ:BCPC).
How have hedgies been trading Balchem Corporation (NASDAQ:BCPC)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in BCPC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the biggest position in Balchem Corporation (NASDAQ:BCPC), worth close to $26 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $23 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other peers that hold long positions contain Murray Stahl’s Horizon Asset Management, and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Balchem Corporation (NASDAQ:BCPC), around 0.24% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, earmarking 0.16 percent of its 13F equity portfolio to BCPC.
Because Balchem Corporation (NASDAQ:BCPC) has experienced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers who were dropping their entire stakes in the third quarter. Interestingly, Noam Gottesman’s GLG Partners said goodbye to the biggest position of the 750 funds watched by Insider Monkey, comprising close to $4 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dumped about $0.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Balchem Corporation (NASDAQ:BCPC). These stocks are FibroGen Inc (NASDAQ:FGEN), Viavi Solutions Inc (NASDAQ:VIAV), Intelsat S.A. (NYSE:I), and Avista Corp (NYSE:AVA). This group of stocks’ market values resemble BCPC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FGEN | 24 | 334669 | 8 |
| VIAV | 30 | 333312 | 8 |
| I | 48 | 1063619 | 6 |
| AVA | 15 | 137623 | 4 |
| Average | 29.25 | 467306 | 6.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $57 million in BCPC’s case. Intelsat S.A. (NYSE:I) is the most popular stock in this table. On the other hand Avista Corp (NYSE:AVA) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Balchem Corporation (NASDAQ:BCPC) is even less popular than AVA. Hedge funds dodged a bullet by taking a bearish stance towards BCPC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BCPC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BCPC investors were disappointed as the stock returned 0.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
