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 Ebix Inc (NASDAQ:EBIX).
Is Ebix Inc (NASDAQ:EBIX) a sound stock to buy now? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund bets dropped by 2 lately. Our calculations also showed that EBIX 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.
To most traders, hedge funds are assumed to be underperforming, outdated investment tools of yesteryear. While there are over 8000 funds trading at the moment, Our researchers hone in on the bigwigs of this group, about 750 funds. It is estimated that this group of investors preside over most of all hedge funds’ total asset base, and by paying attention to their top equity investments, Insider Monkey has brought to light numerous investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year 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 .
Ken Griffin of Citadel Investment Group
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 take a peek at the new hedge fund action regarding Ebix Inc (NASDAQ:EBIX).
How are hedge funds trading Ebix Inc (NASDAQ:EBIX)?
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in EBIX over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, P2 Capital Partners held the most valuable stake in Ebix Inc (NASDAQ:EBIX), which was worth $60.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $11.9 million worth of shares. Marshall Wace, Royce & Associates, and Barington Capital Group 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 Barington Capital Group allocated the biggest weight to Ebix Inc (NASDAQ:EBIX), around 5.47% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, earmarking 4.11 percent of its 13F equity portfolio to EBIX.
Judging by the fact that Ebix Inc (NASDAQ:EBIX) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that elected to cut their full holdings in the third quarter. At the top of the heap, Donald Sussman’s Paloma Partners dumped the largest position of the 750 funds followed by Insider Monkey, worth about $1.4 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund sold off about $1.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ebix Inc (NASDAQ:EBIX) but similarly valued. We will take a look at Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), Stamps.com Inc. (NASDAQ:STMP), Loral Space & Communications Ltd. (NASDAQ:LORL), and Audentes Therapeutics, Inc. (NASDAQ:BOLD). This group of stocks’ market values resemble EBIX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MNTA | 17 | 230449 | -2 |
| STMP | 17 | 306736 | -2 |
| LORL | 18 | 605943 | 2 |
| BOLD | 25 | 486348 | -2 |
| Average | 19.25 | 407369 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $407 million. That figure was $105 million in EBIX’s case. Audentes Therapeutics, Inc. (NASDAQ:BOLD) is the most popular stock in this table. On the other hand Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Ebix Inc (NASDAQ:EBIX) is even less popular than MNTA. Hedge funds dodged a bullet by taking a bearish stance towards EBIX. 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 EBIX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EBIX investors were disappointed as the stock returned -17.2% 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.
