Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Wright Medical Group N.V. (NASDAQ:WMGI).
Wright Medical Group N.V. (NASDAQ:WMGI) shareholders have witnessed an increase in hedge fund interest recently. WMGI was in 35 hedge funds' portfolios at the end of the third quarter of 2019. There were 34 hedge funds in our database with WMGI positions at the end of the previous quarter. Our calculations also showed that WMGI 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' 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 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 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.
[caption id="attachment_341400" align="aligncenter" width="600"] Samuel Isaly of OrbiMed Advisors[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to go over the fresh hedge fund action surrounding Wright Medical Group N.V. (NASDAQ:WMGI).
How have hedgies been trading Wright Medical Group N.V. (NASDAQ:WMGI)?
At Q3's end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WMGI over the last 17 quarters. With hedgies' capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, OrbiMed Advisors held the most valuable stake in Wright Medical Group N.V. (NASDAQ:WMGI), which was worth $79.2 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $61.9 million worth of shares. Millennium Management, Citadel Investment Group, and Palo Alto Investors 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 Bridger Management allocated the biggest weight to Wright Medical Group N.V. (NASDAQ:WMGI), around 3.84% of its portfolio. Sectoral Asset Management is also relatively very bullish on the stock, setting aside 3.79 percent of its 13F equity portfolio to WMGI.
As aggregate interest increased, some big names were breaking ground themselves. Bridger Management, managed by Roberto Mignone, created the most valuable position in Wright Medical Group N.V. (NASDAQ:WMGI). Bridger Management had $46.5 million invested in the company at the end of the quarter. Doug Silverman and Alexander Klabin's Senator Investment Group also initiated a $22 million position during the quarter. The following funds were also among the new WMGI investors: Matt Sirovich and Jeremy Mindich's Scopia Capital, Israel Englander's Millennium Management, and Stephen DuBois's Camber Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Wright Medical Group N.V. (NASDAQ:WMGI) but similarly valued. We will take a look at Sunoco LP (NYSE:SUN), Arco Platform Limited (NASDAQ:ARCE), Vermilion Energy Inc (NYSE:VET), and Cohen & Steers, Inc. (NYSE:CNS). This group of stocks' market caps are similar to WMGI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SUN,3,6682,-3 ARCE,12,60723,3 VET,10,46500,3 CNS,16,76446,1 Average,10.25,47588,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $706 million in WMGI's case. Cohen & Steers, Inc. (NYSE:CNS) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Wright Medical Group N.V. (NASDAQ:WMGI) 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 WMGI as the stock returned 44.3% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.