The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Healthequity Inc (NASDAQ:HQY) and find out how it is affected by hedge funds’ moves.
Is Healthequity Inc (NASDAQ:HQY) a cheap stock to buy now? Hedge funds are becoming less hopeful. The number of long hedge fund positions were cut by 4 recently. Our calculations also showed that HQY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). HQY was in 19 hedge funds’ portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with HQY holdings at the end of the previous quarter.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
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. We’re going to analyze the new hedge fund action regarding Healthequity Inc (NASDAQ:HQY).
How are hedge funds trading Healthequity Inc (NASDAQ:HQY)?
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HQY over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Healthequity Inc (NASDAQ:HQY), which was worth $54.2 million at the end of the third quarter. On the second spot was Echo Street Capital Management which amassed $34.1 million worth of shares. Two Sigma Advisors, Lucha Capital Management, and Balyasny Asset Management 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 Red Cedar Management allocated the biggest weight to Healthequity Inc (NASDAQ:HQY), around 6.61% of its 13F portfolio. Lucha Capital Management is also relatively very bullish on the stock, setting aside 5.91 percent of its 13F equity portfolio to HQY.
Judging by the fact that Healthequity Inc (NASDAQ:HQY) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies who sold off their full holdings last quarter. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp sold off the largest investment of the 750 funds followed by Insider Monkey, totaling about $2.4 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also cut its stock, about $1.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Healthequity Inc (NASDAQ:HQY). We will take a look at Carter’s, Inc. (NYSE:CRI), LendingTree, Inc (NASDAQ:TREE), Cushman & Wakefield plc (NYSE:CWK), and FirstService Corporation (NASDAQ:FSV). All of these stocks’ market caps are similar to HQY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRI | 22 | 205949 | -3 |
| TREE | 21 | 84892 | -7 |
| CWK | 10 | 156714 | -4 |
| FSV | 12 | 163650 | 2 |
| Average | 16.25 | 152801 | -3 |
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 $153 million. That figure was $213 million in HQY’s case. Carter’s, Inc. (NYSE:CRI) is the most popular stock in this table. On the other hand Cushman & Wakefield plc (NYSE:CWK) is the least popular one with only 10 bullish hedge fund positions. Healthequity Inc (NASDAQ:HQY) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on HQY, though not to the same extent, as the stock returned 10.1% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
