We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards AtriCure Inc. (NASDAQ:ATRC) and determine whether hedge funds skillfully traded this stock.
AtriCure Inc. (NASDAQ:ATRC) was in 23 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 25. ATRC shareholders have witnessed an increase in enthusiasm from smart money recently. There were 20 hedge funds in our database with ATRC holdings at the end of March. Our calculations also showed that ATRC isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 58 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.
Richard Driehaus of Driehaus 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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's analyze the latest hedge fund action surrounding AtriCure Inc. (NASDAQ:ATRC).
What does smart money think about AtriCure Inc. (NASDAQ:ATRC)?
At Q2's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the first quarter of 2020. On the other hand, there were a total of 20 hedge funds with a bullish position in ATRC a year ago. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, OrbiMed Advisors was the largest shareholder of AtriCure Inc. (NASDAQ:ATRC), with a stake worth $55.2 million reported as of the end of September. Trailing OrbiMed Advisors was Pura Vida Investments, which amassed a stake valued at $30.8 million. Renaissance Technologies, Perceptive Advisors, and Sectoral Asset Management 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 Pura Vida Investments allocated the biggest weight to AtriCure Inc. (NASDAQ:ATRC), around 5.82% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, setting aside 2.82 percent of its 13F equity portfolio to ATRC.
As aggregate interest increased, some big names were leading the bulls' herd. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, initiated the most valuable position in AtriCure Inc. (NASDAQ:ATRC). Polar Capital had $17.2 million invested in the company at the end of the quarter. Richard Driehaus's Driehaus Capital also initiated a $5.5 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Matthew Hulsizer's PEAK6 Capital Management, and Cliff Asness's AQR Capital Management.
Let's go over hedge fund activity in other stocks similar to AtriCure Inc. (NASDAQ:ATRC). These stocks are Ligand Pharmaceuticals Inc. (NASDAQ:LGND), Federal Signal Corporation (NYSE:FSS), Graham Holdings Co (NYSE:GHC), CommVault Systems, Inc. (NASDAQ:CVLT), Pebblebrook Hotel Trust (NYSE:PEB), KAR Auction Services Inc (NYSE:KAR), and Allegiant Travel Company (NASDAQ:ALGT). This group of stocks' market valuations are similar to ATRC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LGND,22,266817,-5 FSS,12,39674,-3 GHC,22,278796,1 CVLT,22,396917,4 PEB,13,137590,3 KAR,30,302345,9 ALGT,23,334831,4 Average,20.6,250996,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.6 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $270 million in ATRC's case. KAR Auction Services Inc (NYSE:KAR) is the most popular stock in this table. On the other hand Federal Signal Corporation (NYSE:FSS) is the least popular one with only 12 bullish hedge fund positions. AtriCure Inc. (NASDAQ:ATRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ATRC is 66.2. 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately ATRC wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ATRC were disappointed as the stock returned -11.2% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.