Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Medpace Holdings, Inc. (NASDAQ:MEDP).
Is Medpace Holdings, Inc. (NASDAQ:MEDP) a healthy stock for your portfolio? Hedge funds are getting less optimistic. The number of bullish hedge fund bets were trimmed by 5 lately. Our calculations also showed that MEDP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
According to most traders, hedge funds are assumed to be slow, outdated financial tools of years past. While there are more than 8000 funds trading today, Our experts hone in on the bigwigs of this group, about 850 funds. It is estimated that this group of investors shepherd the lion's share of all hedge funds' total asset base, and by tailing their inimitable stock picks, Insider Monkey has found a few investment strategies that have historically surpassed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_26357" align="aligncenter" width="359"] Ken Fisher of Fisher Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a gander at the key hedge fund action regarding Medpace Holdings, Inc. (NASDAQ:MEDP).
What does smart money think about Medpace Holdings, Inc. (NASDAQ:MEDP)?
At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in MEDP a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Medpace Holdings, Inc. (NASDAQ:MEDP), with a stake worth $49.3 million reported as of the end of September. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $35 million. GLG Partners, Arrowstreet Capital, and D E Shaw 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 Sio Capital allocated the biggest weight to Medpace Holdings, Inc. (NASDAQ:MEDP), around 0.53% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, earmarking 0.44 percent of its 13F equity portfolio to MEDP.
Since Medpace Holdings, Inc. (NASDAQ:MEDP) has witnessed declining sentiment from the smart money, we can see that there exists a select few fund managers who sold off their full holdings heading into Q4. At the top of the heap, Richard Driehaus's Driehaus Capital dumped the biggest position of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $1.5 million in stock. Joseph Edelman's fund, Perceptive Advisors, also dumped its stock, about $0.5 million worth. These moves are important to note, as total hedge fund interest was cut by 5 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Medpace Holdings, Inc. (NASDAQ:MEDP). We will take a look at Cathay General Bancorp (NASDAQ:CATY), KB Home (NYSE:KBH), RLJ Lodging Trust (NYSE:RLJ), and Navient Corp (NASDAQ:NAVI). This group of stocks' market values resemble MEDP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CATY,14,22947,-4 KBH,29,535490,3 RLJ,17,131994,-4 NAVI,38,513271,5 Average,24.5,300926,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $203 million in MEDP's case. Navient Corp (NASDAQ:NAVI) is the most popular stock in this table. On the other hand Cathay General Bancorp (NASDAQ:CATY) is the least popular one with only 14 bullish hedge fund positions. Medpace Holdings, Inc. (NASDAQ:MEDP) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on MEDP, though not to the same extent, as the stock returned -19.1% during the same time period and outperformed the market. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.