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Hedge Funds Are Cashing Out Of Change Healthcare Inc. (CHNG)

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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Change Healthcare Inc. (NASDAQ:CHNG).

Change Healthcare Inc. (NASDAQ:CHNG) has seen a decrease in hedge fund interest lately. Change Healthcare Inc. (NASDAQ:CHNG) was in 50 hedge funds' portfolios at the end of September. The all time high for this statistic is 56. There were 51 hedge funds in our database with CHNG positions at the end of the second quarter. Our calculations also showed that CHNG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we're going to take a look at the recent hedge fund action regarding Change Healthcare Inc. (NASDAQ:CHNG).

David Abrams
David Abrams

David Abrams of Abrams Capital Management

Do Hedge Funds Think CHNG Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from one quarter earlier. By comparison, 49 hedge funds held shares or bullish call options in CHNG a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in Change Healthcare Inc. (NASDAQ:CHNG) was held by Abrams Capital Management, which reported holding $355.5 million worth of stock at the end of September. It was followed by Magnetar Capital with a $153 million position. Other investors bullish on the company included Park West Asset Management, Camber Capital Management, and Alpine Associates. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Change Healthcare Inc. (NASDAQ:CHNG), around 7.75% of its 13F portfolio. Solel Partners is also relatively very bullish on the stock, setting aside 6.58 percent of its 13F equity portfolio to CHNG.

Seeing as Change Healthcare Inc. (NASDAQ:CHNG) has witnessed declining sentiment from the smart money, it's easy to see that there exists a select few hedge funds who sold off their entire stakes by the end of the third quarter. Interestingly, Renaissance Technologies dumped the largest stake of all the hedgies tracked by Insider Monkey, valued at about $19.4 million in stock. Ben Levine, Andrew Manuel and Stefan Renold's fund, LMR Partners, also dumped its stock, about $7.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to Change Healthcare Inc. (NASDAQ:CHNG). These stocks are Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), Virgin Galactic Holdings, Inc. (NYSE:SPCE), Varonis Systems Inc (NASDAQ:VRNS), First Financial Bankshares Inc (NASDAQ:FFIN), Healthcare Trust Of America Inc (NYSE:HTA), Mattel, Inc. (NASDAQ:MAT), and TaskUs Inc. (NASDAQ:TASK). This group of stocks' market caps match CHNG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARWR,24,150783,-6 SPCE,16,105669,-2 VRNS,27,298396,3 FFIN,20,81284,12 HTA,14,381781,-9 MAT,34,1030578,9 TASK,18,230676,18 Average,21.9,325595,3.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $1558 million in CHNG's case. Mattel, Inc. (NASDAQ:MAT) is the most popular stock in this table. On the other hand Healthcare Trust Of America Inc (NYSE:HTA) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Change Healthcare Inc. (NASDAQ:CHNG) is more popular among hedge funds. Our overall hedge fund sentiment score for CHNG is 80.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Unfortunately CHNG wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CHNG were disappointed as the stock returned -3.2% since the end of the third quarter (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.