Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Change Healthcare Inc. (NASDAQ:CHNG) changed recently.
Change Healthcare Inc. (NASDAQ:CHNG) was in 29 hedge funds' portfolios at the end of the second quarter of 2019. CHNG investors should be aware of an increase in hedge fund sentiment in recent months. There were 0 hedge funds in our database with CHNG positions at the end of the previous quarter. Our calculations also showed that CHNG 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.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 take a gander at the key hedge fund action regarding Change Healthcare Inc. (NASDAQ:CHNG).
Hedge fund activity in Change Healthcare Inc. (NASDAQ:CHNG)
At Q2's end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29 from the previous quarter. The graph below displays the number of hedge funds with bullish position in CHNG over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Arthur B Cohen and Joseph Healey's Healthcor Management LP has the most valuable position in Change Healthcare Inc. (NASDAQ:CHNG), worth close to $39.3 million, corresponding to 1.5% of its total 13F portfolio. On Healthcor Management LP's heels is Steve Cohen of Point72 Asset Management, with a $35.1 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass Ken Griffin's Citadel Investment Group, Alec Litowitz and Ross Laser's Magnetar Capital and James Dinan's York Capital Management.
As one would reasonably expect, key hedge funds were breaking ground themselves. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, created the biggest position in Change Healthcare Inc. (NASDAQ:CHNG). Healthcor Management LP had $39.3 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $35.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group, Alec Litowitz and Ross Laser's Magnetar Capital, and James Dinan's York Capital Management.
Let's now review hedge fund activity in other stocks similar to Change Healthcare Inc. (NASDAQ:CHNG). We will take a look at MaxLinear, Inc. (NYSE:MXL), SciPlay Corporation (NASDAQ:SCPL), Enerplus Corporation (NYSE:ERF), and 360 Finance, Inc. (NASDAQ:QFIN). This group of stocks' market values are closest to CHNG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MXL,7,18569,1 SCPL,16,95579,16 ERF,12,130197,-9 QFIN,9,10013,8 Average,11,63590,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $274 million in CHNG's case. SciPlay Corporation (NASDAQ:SCPL) is the most popular stock in this table. On the other hand MaxLinear, Inc. (NYSE:MXL) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Change Healthcare Inc. (NASDAQ:CHNG) 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. Unfortunately CHNG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CHNG were disappointed as the stock returned -17.3% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.