Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Select Medical Holdings Corporation (NYSE:SEM).
Hedge fund interest in Select Medical Holdings Corporation (NYSE:SEM) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SEM to other stocks including Avalara, Inc. (NYSE:AVLR), The Navigators Group, Inc (NASDAQ:NAVG), and Bottomline Technologies (NASDAQ:EPAY) to get a better sense of its popularity.
If you’d ask most shareholders, hedge funds are seen as worthless, old financial vehicles of years past. While there are over 8000 funds trading at the moment, We choose to focus on the upper echelon of this group, approximately 750 funds. These money managers administer most of the hedge fund industry’s total asset base, and by tracking their best stock picks, Insider Monkey has discovered several investment strategies that have historically outstripped the market. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
We’re going to take a look at the key hedge fund action regarding Select Medical Holdings Corporation (NYSE:SEM).
How have hedgies been trading Select Medical Holdings Corporation (NYSE:SEM)?
Heading into the first quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SEM over the last 14 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the number one position in Select Medical Holdings Corporation (NYSE:SEM). Fisher Asset Management has a $48.9 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Deerfield Management, led by James E. Flynn, holding a $21.2 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Paul Marshall and Ian Wace’s Marshall Wace LLP, Steve Cohen’s Point72 Asset Management and Israel Englander’s Millennium Management.
Judging by the fact that Select Medical Holdings Corporation (NYSE:SEM) has faced a decline in interest from the smart money, we can see that there lies a certain “tier” of fund managers that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Samuel Isaly’s OrbiMed Advisors dumped the biggest stake of all the hedgies tracked by Insider Monkey, comprising an estimated $19 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund said goodbye to about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Select Medical Holdings Corporation (NYSE:SEM) but similarly valued. These stocks are Avalara, Inc. (NYSE:AVLR), The Navigators Group, Inc (NASDAQ:NAVG), Bottomline Technologies (de), Inc. (NASDAQ:EPAY), and Whiting Petroleum Corporation (NYSE:WLL). This group of stocks’ market values are closest to SEM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVLR | 14 | 535698 | -1 |
| NAVG | 17 | 243042 | 0 |
| EPAY | 17 | 74972 | -2 |
| WLL | 33 | 356034 | -6 |
| Average | 20.25 | 302437 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $154 million in SEM’s case. Whiting Petroleum Corporation (NYSE:WLL) is the most popular stock in this table. On the other hand Avalara, Inc. (NYSE:AVLR) is the least popular one with only 14 bullish hedge fund positions. Select Medical Holdings Corporation (NYSE:SEM) 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 SEM wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); SEM investors were disappointed as the stock returned -11.4% 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.
