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 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month 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 Option Care Health, Inc. (NASDAQ:BIOS).
Is Option Care Health, Inc. (NASDAQ:BIOS) a healthy stock for your portfolio? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund bets shrunk by 1 lately. Our calculations also showed that BIOS isn’t among the 30 most popular stocks among hedge funds (see the video below). BIOS was in 15 hedge funds’ portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with BIOS 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s check out the recent hedge fund action encompassing Option Care Health, Inc. (NASDAQ:BIOS).
Hedge fund activity in Option Care Health, Inc. (NASDAQ:BIOS)
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BIOS over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Venor Capital Management held the most valuable stake in Option Care Health, Inc. (NASDAQ:BIOS), which was worth $32.1 million at the end of the second quarter. On the second spot was Alta Fundamental Advisers which amassed $7.1 million worth of shares. Moreover, Royce & Associates, Diamond Hill Capital, and D E Shaw were also bullish on BioScrip Inc. (NASDAQ:BIOS), allocating a large percentage of their portfolios to this stock.
Seeing as Option Care Health, Inc. (NASDAQ:BIOS) has witnessed a decline in interest from hedge fund managers, logic holds that there is a sect of funds that slashed their entire stakes heading into Q3. It’s worth mentioning that Phil Frohlich’s Prescott Group Capital Management said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, valued at close to $0.3 million in stock. Kamran Moghtaderi’s fund, Eversept Partners, also cut its stock, about $0.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Option Care Health, Inc.(NASDAQ:BIOS) but similarly valued. We will take a look at P.A.M. Transportation Services, Inc. (NASDAQ:PTSI), MagnaChip Semiconductor Corporation (NYSE:MX), Chuy’s Holdings Inc (NASDAQ:CHUY), and Gladstone Investment Corporation (NASDAQ:GAIN). This group of stocks’ market caps are similar to BIOS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PTSI | 1 | 24550 | -1 |
| MX | 21 | 139594 | 3 |
| CHUY | 12 | 18664 | 2 |
| GAIN | 4 | 1798 | -3 |
| Average | 9.5 | 46152 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $66 million in BIOS’s case. MagnaChip Semiconductor Corporation (NYSE:MX) is the most popular stock in this table. On the other hand P.A.M. Transportation Services, Inc. (NASDAQ:PTSI) is the least popular one with only 1 bullish hedge fund positions. Option Care Health, Inc.(NASDAQ:BIOS) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on BIOS as the stock returned 23.1% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
