"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Ebix Inc (NASDAQ:EBIX) and see how it was affected.
Ebix Inc (NASDAQ:EBIX) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. EBIX was in 18 hedge funds' portfolios at the end of June. There were 22 hedge funds in our database with EBIX holdings at the end of the previous quarter. Our calculations also showed that EBIX isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the latest hedge fund action encompassing Ebix Inc (NASDAQ:EBIX).
What have hedge funds been doing with Ebix Inc (NASDAQ:EBIX)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in EBIX a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ebix Inc (NASDAQ:EBIX) was held by P2 Capital Partners, which reported holding $72.5 million worth of stock at the end of March. It was followed by Marshall Wace LLP with a $20.4 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Barington Capital Group.
Due to the fact that Ebix Inc (NASDAQ:EBIX) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there is a sect of hedge funds that elected to cut their entire stakes last quarter. At the top of the heap, Eric Bannasch's Cadian Capital dropped the biggest position of the 750 funds tracked by Insider Monkey, comprising about $8.8 million in stock. David Harding's fund, Winton Capital Management, also said goodbye to its stock, about $4.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Ebix Inc (NASDAQ:EBIX). We will take a look at McGrath RentCorp (NASDAQ:MGRC), SFL Corporation Ltd. (NYSE:SFL), CareDx, Inc. (NASDAQ:CDNA), and HNI Corporation (NYSE:HNI). This group of stocks' market valuations are similar to EBIX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGRC,18,141319,-4 SFL,11,36180,5 CDNA,24,169840,-1 HNI,14,49052,-4 Average,16.75,99098,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $158 million in EBIX's case. CareDx, Inc. (NASDAQ:CDNA) is the most popular stock in this table. On the other hand SFL Corporation Ltd. (NYSE:SFL) is the least popular one with only 11 bullish hedge fund positions. Ebix Inc (NASDAQ:EBIX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EBIX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EBIX were disappointed as the stock returned -16% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.