Is Model N Inc (NYSE:MODN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Model N Inc (NYSE:MODN) was in 18 hedge funds' portfolios at the end of the third quarter of 2019. MODN investors should pay attention to an increase in enthusiasm from smart money lately. There were 12 hedge funds in our database with MODN holdings at the end of the previous quarter. Our calculations also showed that MODN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's review the key hedge fund action surrounding Model N Inc (NYSE:MODN).
What have hedge funds been doing with Model N Inc (NYSE:MODN)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MODN over the last 17 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.
Among these funds, Renaissance Technologies held the most valuable stake in Model N Inc (NYSE:MODN), which was worth $47.6 million at the end of the third quarter. On the second spot was Trigran Investments which amassed $30.5 million worth of shares. Portolan Capital Management, Two Sigma Advisors, and Millennium 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 Trigran Investments allocated the biggest weight to Model N Inc (NYSE:MODN), around 5.77% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, setting aside 2.88 percent of its 13F equity portfolio to MODN.
Now, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, created the largest position in Model N Inc (NYSE:MODN). Millennium Management had $8.7 million invested in the company at the end of the quarter. Kamran Moghtaderi's Eversept Partners also initiated a $3.4 million position during the quarter. The following funds were also among the new MODN investors: David Harding's Winton Capital Management, Minhua Zhang's Weld Capital Management, and Ken Griffin's Citadel Investment Group.
Let's now review hedge fund activity in other stocks similar to Model N Inc (NYSE:MODN). These stocks are Franklin Street Properties Corp. (NYSE:FSP), Standex International Corporation (NYSE:SXI), Sunnova Energy International Inc. (NYSE:NOVA), and CNX Midstream Partners LP (NYSE:CNXM). This group of stocks' market values resemble MODN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FSP,8,41686,2 SXI,16,43739,7 NOVA,9,60529,9 CNXM,6,13254,1 Average,9.75,39802,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $155 million in MODN's case. Standex International Corporation (NYSE:SXI) is the most popular stock in this table. On the other hand CNX Midstream Partners LP (NYSE:CNXM) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Model N Inc (NYSE:MODN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on MODN, though not to the same extent, as the stock returned 9.6% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.