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Hedge Funds Have Never Been This Bullish On Healthequity Inc (HQY)

Nina Todic

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is Healthequity Inc (NASDAQ:HQY) the right investment to pursue these days? Hedge funds are becoming hopeful. The number of long hedge fund positions moved up by 4 lately. Our calculations also showed that hqy isn't among the 30 most popular stocks among hedge funds. HQY was in 22 hedge funds' portfolios at the end of March. There were 18 hedge funds in our database with HQY positions at the end of the previous quarter.

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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

RENAISSANCE TECHNOLOGIES

Let's take a look at the latest hedge fund action encompassing Healthequity Inc (NASDAQ:HQY).

What have hedge funds been doing with Healthequity Inc (NASDAQ:HQY)?

At Q1's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards HQY over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with HQY Positions

More specifically, Renaissance Technologies was the largest shareholder of Healthequity Inc (NASDAQ:HQY), with a stake worth $48.6 million reported as of the end of March. Trailing Renaissance Technologies was Echo Street Capital Management, which amassed a stake valued at $24.8 million. Millennium Management, Two Sigma Advisors, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers have been driving this bullishness. Echo Street Capital Management, managed by Greg Poole, established the largest position in Healthequity Inc (NASDAQ:HQY). Echo Street Capital Management had $24.8 million invested in the company at the end of the quarter. Alexander Charles McAree's Red Cedar Management also made a $4.4 million investment in the stock during the quarter. The other funds with brand new HQY positions are D. E. Shaw's D E Shaw, Andrew Feldstein and Stephen Siderow's Blue Mountain Capital, and David Costen Haley's HBK Investments.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Healthequity Inc (NASDAQ:HQY) but similarly valued. These stocks are TFS Financial Corporation (NASDAQ:TFSL), PacWest Bancorp (NASDAQ:PACW), Axis Capital Holdings Limited (NYSE:AXS), and Shell Midstream Partners LP (NYSE:SHLX). All of these stocks' market caps resemble HQY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TFSL,7,143387,0 PACW,21,237543,0 AXS,31,767401,1 SHLX,7,21377,-1 Average,16.5,292427,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $135 million in HQY's case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 7 bullish hedge fund positions. Healthequity Inc (NASDAQ:HQY) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately HQY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HQY were disappointed as the stock returned -9% during the same period 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 13 of these stocks already outperformed the market so far in Q2.

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

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