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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Evolent Health Inc (NYSE:EVH) based on that data.
Is EVH a good stock to buy now? Evolent Health Inc (NYSE:EVH) was in 20 hedge funds' portfolios at the end of September. The all time high for this statistic is 23. EVH investors should be aware of an increase in support from the world's most elite money managers of late. There were 15 hedge funds in our database with EVH holdings at the end of June. Our calculations also showed that EVH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to take a peek at the latest hedge fund action regarding Evolent Health Inc (NYSE:EVH).
Do Hedge Funds Think EVH Is A Good Stock To Buy Now?
At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in EVH a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Evolent Health Inc (NYSE:EVH) was held by Engaged Capital, which reported holding $106.1 million worth of stock at the end of September. It was followed by Sectoral Asset Management with a $25.9 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and Voce Capital. In terms of the portfolio weights assigned to each position Engaged Capital allocated the biggest weight to Evolent Health Inc (NYSE:EVH), around 10.98% of its 13F portfolio. Voce Capital is also relatively very bullish on the stock, earmarking 5.96 percent of its 13F equity portfolio to EVH.
Consequently, key money managers have been driving this bullishness. Engaged Capital, managed by Glenn W. Welling, initiated the largest position in Evolent Health Inc (NYSE:EVH). Engaged Capital had $106.1 million invested in the company at the end of the quarter. Kenneth Squire's 13D Management also initiated a $7.7 million position during the quarter. The other funds with new positions in the stock are Peter S. Park's Park West Asset Management, Cliff Asness's AQR Capital Management, and D. E. Shaw's D E Shaw.
Let's go over hedge fund activity in other stocks similar to Evolent Health Inc (NYSE:EVH). These stocks are Quanterix Corporation (NASDAQ:QTRX), Innoviva, Inc. (NASDAQ:INVA), Lakeland Financial Corporation (NASDAQ:LKFN), Materion Corp (NYSE:MTRN), EverQuote, Inc. (NASDAQ:EVER), Avidity Biosciences, Inc. (NASDAQ:RNA), and Genetron Holdings Limited (NASDAQ:GTH). All of these stocks' market caps resemble EVH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QTRX,10,75933,2 INVA,21,230768,2 LKFN,5,9688,0 MTRN,14,81395,0 EVER,21,178745,-2 RNA,17,311619,-7 GTH,12,99741,-4 Average,14.3,141127,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $209 million in EVH's case. Innoviva, Inc. (NASDAQ:INVA) is the most popular stock in this table. On the other hand Lakeland Financial Corporation (NASDAQ:LKFN) is the least popular one with only 5 bullish hedge fund positions. Evolent Health Inc (NYSE:EVH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EVH is 83. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on EVH as the stock returned 18.2% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.