Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Hanger, Inc. (NYSE:HNGR).
Hanger, Inc. (NYSE:HNGR) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Our calculations also showed that HNGR 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. Let's check out the latest hedge fund action regarding Hanger, Inc. (NYSE:HNGR).
Hedge fund activity in Hanger, Inc. (NYSE:HNGR)
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HNGR over the last 16 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Courage Capital held the most valuable stake in Hanger, Inc. (NYSE:HNGR), which was worth $23.4 million at the end of the second quarter. On the second spot was SCW Capital Management which amassed $22.4 million worth of shares. Moreover, Cannell Capital, Ancora Advisors, and Ariel Investments were also bullish on Hanger, Inc. (NYSE:HNGR), allocating a large percentage of their portfolios to this stock.
Due to the fact that Hanger, Inc. (NYSE:HNGR) has experienced bearish sentiment from hedge fund managers, it's safe to say that there were a few hedge funds who were dropping their entire stakes in the second quarter. It's worth mentioning that Andrew Feldstein and Stephen Siderow's Blue Mountain Capital sold off the biggest position of the 750 funds tracked by Insider Monkey, worth close to $5.7 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also cut its stock, about $4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 5 funds in the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Hanger, Inc. (NYSE:HNGR) but similarly valued. These stocks are Weidai Ltd. (NYSE:WEI), Midland States Bancorp, Inc. (NASDAQ:MSBI), Cytokinetics, Incorporated (NASDAQ:CYTK), and Flushing Financial Corporation (NASDAQ:FFIC). This group of stocks' market caps match HNGR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WEI,1,381,0 MSBI,6,3340,2 CYTK,14,138145,-2 FFIC,8,44046,0 Average,7.25,46478,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $122 million in HNGR's case. Cytokinetics, Incorporated (NASDAQ:CYTK) is the most popular stock in this table. On the other hand Weidai Ltd. (NYSE:WEI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Hanger, Inc. (NYSE:HNGR) is more popular among hedge funds. 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 HNGR as the stock returned 6.4% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.