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Hedge Funds Are Dumping Benefitfocus Inc (BNFT)

Abigail Fisher

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Benefitfocus Inc (NASDAQ:BNFT) investors should pay attention to a decrease in hedge fund interest in recent months. Our calculations also showed that BNFT 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.

5 Most Popular Stocks Among Hedge Funds

According to most shareholders, hedge funds are seen as worthless, outdated financial vehicles of the past. While there are over 8000 funds with their doors open at present, Our experts look at the moguls of this club, around 750 funds. Most estimates calculate that this group of people control most of all hedge funds' total capital, and by tracking their inimitable stock picks, Insider Monkey has discovered several investment strategies that have historically surpassed the S&P 500 index. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

BNFT_oct2019

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 view the fresh hedge fund action encompassing Benefitfocus Inc (NASDAQ:BNFT).

What does smart money think about Benefitfocus Inc (NASDAQ:BNFT)?

At Q2's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BNFT over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

John Overdeck of Two Sigma

More specifically, D E Shaw was the largest shareholder of Benefitfocus Inc (NASDAQ:BNFT), with a stake worth $14.2 million reported as of the end of March. Trailing D E Shaw was Two Sigma Advisors, which amassed a stake valued at $11.6 million. Polar Capital, Selz Capital, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Because Benefitfocus Inc (NASDAQ:BNFT) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few hedge funds who were dropping their entire stakes by the end of the second quarter. Interestingly, Steve Cohen's Point72 Asset Management dumped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, comprising close to $25.2 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund said goodbye to about $12.6 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 7 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks similar to Benefitfocus Inc (NASDAQ:BNFT). We will take a look at Vericel Corp (NASDAQ:VCEL), QAD Inc. (NASDAQ:QADA), Fluidigm Corporation (NASDAQ:FLDM), and NorthStar Realty Europe Corp. (NYSE:NRE). All of these stocks' market caps match BNFT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VCEL,17,176656,-8 QADA,11,113256,-5 FLDM,17,137031,-2 NRE,12,100119,3 Average,14.25,131766,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $57 million in BNFT's case. Vericel Corp (NASDAQ:VCEL) is the most popular stock in this table. On the other hand QAD Inc. (NASDAQ:QADA) is the least popular one with only 11 bullish hedge fund positions. Benefitfocus Inc (NASDAQ:BNFT) 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 BNFT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BNFT were disappointed as the stock returned -12.3% 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.

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