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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Syneos Health, Inc. (NASDAQ:SYNH) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Syneos Health, Inc. (NASDAQ:SYNH) a healthy stock for your portfolio? Money managers were betting on the stock. The number of long hedge fund positions increased by 7 lately. Syneos Health, Inc. (NASDAQ:SYNH) was in 29 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SYNH 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Donald Sussman of Paloma Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let's analyze the fresh hedge fund action regarding Syneos Health, Inc. (NASDAQ:SYNH).
What have hedge funds been doing with Syneos Health, Inc. (NASDAQ:SYNH)?
At second quarter's end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in SYNH over the last 20 quarters. So, let's see 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, Israel Englander's Millennium Management has the number one position in Syneos Health, Inc. (NASDAQ:SYNH), worth close to $75.9 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $57.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Steve Cohen's Point72 Asset Management, Amy Minella's Cardinal Capital and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to Syneos Health, Inc. (NASDAQ:SYNH), around 1.67% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, setting aside 1.01 percent of its 13F equity portfolio to SYNH.
Consequently, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, created the most valuable position in Syneos Health, Inc. (NASDAQ:SYNH). Point72 Asset Management had $41.2 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley's Polar Capital also initiated a $14.2 million position during the quarter. The other funds with brand new SYNH positions are Donald Sussman's Paloma Partners, Vishal Saluja and Pham Quang's Endurant Capital Management, and Benjamin A. Smith's Laurion Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Syneos Health, Inc. (NASDAQ:SYNH) but similarly valued. These stocks are Athene Holding Ltd. (NYSE:ATH), Elbit Systems Ltd. (NASDAQ:ESLT), Robert Half International Inc. (NYSE:RHI), Reliance Steel & Aluminum Co. (NYSE:RS), Morningstar, Inc. (NASDAQ:MORN), Aegon N.V. (NYSE:AEG), and CF Industries Holdings, Inc. (NYSE:CF). This group of stocks' market caps are closest to SYNH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATH,33,765101,1 ESLT,4,11024,-2 RHI,28,300880,2 RS,27,221183,4 MORN,20,292962,7 AEG,4,16423,0 CF,37,547941,3 Average,21.9,307931,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $308 million. That figure was $355 million in SYNH's case. CF Industries Holdings, Inc. (NYSE:CF) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 4 bullish hedge fund positions. Syneos Health, Inc. (NASDAQ:SYNH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SYNH is 77.9. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately SYNH wasn't nearly as popular as these 10 stocks and hedge funds that were betting on SYNH were disappointed as the stock returned 4.7% during the same time 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 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.