Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Chemed Corporation (NYSE:CHE) has seen a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that CHE 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.
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Ken Fisher of Fisher Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the recent hedge fund action encompassing Chemed Corporation (NYSE:CHE).
How have hedgies been trading Chemed Corporation (NYSE:CHE)?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in CHE a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Chemed Corporation (NYSE:CHE), which was worth $142.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $80.6 million worth of shares. GLG Partners, Citadel Investment Group, and GAMCO Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Noked Capital allocated the biggest weight to Chemed Corporation (NYSE:CHE), around 0.37% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.35 percent of its 13F equity portfolio to CHE.
Because Chemed Corporation (NYSE:CHE) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of funds who sold off their entire stakes in the third quarter. It’s worth mentioning that Chuck Royce’s Royce & Associates cut the largest position of all the hedgies followed by Insider Monkey, valued at an estimated $3 million in stock. Robert B. Gillam’s fund, McKinley Capital Management, also dumped its stock, about $2 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Chemed Corporation (NYSE:CHE) but similarly valued. These stocks are Donaldson Company, Inc. (NYSE:DCI), Reliance Steel & Aluminum Co. (NYSE:RS), First American Financial Corp (NYSE:FAF), and American Campus Communities, Inc. (NYSE:ACC). This group of stocks’ market values match CHE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DCI | 21 | 199801 | 5 |
| RS | 22 | 313426 | 3 |
| FAF | 35 | 905288 | 1 |
| ACC | 19 | 407788 | 2 |
| Average | 24.25 | 456576 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $457 million. That figure was $388 million in CHE’s case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand American Campus Communities, Inc. (NYSE:ACC) is the least popular one with only 19 bullish hedge fund positions. Chemed Corporation (NYSE:CHE) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CHE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CHE investors were disappointed as the stock returned 3.1% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
