We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Integra Lifesciences Holdings Corp (NASDAQ:IART)? The smart money sentiment can provide an answer to this question.
Integra Lifesciences Holdings Corp (NASDAQ:IART) was in 17 hedge funds' portfolios at the end of December. IART has experienced a decrease in activity from the world's largest hedge funds recently. There were 23 hedge funds in our database with IART positions at the end of the previous quarter. Our calculations also showed that IART isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by 41 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.
[caption id="attachment_26335" align="aligncenter" width="400"] Ken Fisher of Fisher Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's go over the recent hedge fund action regarding Integra Lifesciences Holdings Corp (NASDAQ:IART).
How have hedgies been trading Integra Lifesciences Holdings Corp (NASDAQ:IART)?
Heading into the first quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in IART a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Integra Lifesciences Holdings Corp (NASDAQ:IART), with a stake worth $40.7 million reported as of the end of September. Trailing Fisher Asset Management was D E Shaw, which amassed a stake valued at $23.5 million. Point72 Asset Management, Renaissance Technologies, and Citadel Investment Group 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 Weld Capital Management allocated the biggest weight to Integra Lifesciences Holdings Corp (NASDAQ:IART), around 0.09% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to IART.
Since Integra Lifesciences Holdings Corp (NASDAQ:IART) has witnessed declining sentiment from hedge fund managers, logic holds that there exists a select few fund managers who sold off their entire stakes last quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $23.6 million in stock, and Phill Gross and Robert Atchinson's Adage Capital Management was right behind this move, as the fund dropped about $9 million worth. These moves are interesting, as total hedge fund interest dropped by 6 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Integra Lifesciences Holdings Corp (NASDAQ:IART). We will take a look at Blackstone Mortgage Trust Inc (NYSE:BXMT), Axis Capital Holdings Limited (NYSE:AXS), Portland General Electric Company (NYSE:POR), and Cree, Inc. (NASDAQ:CREE). This group of stocks' market values are similar to IART's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BXMT,15,64533,-2 AXS,34,942398,2 POR,27,408157,0 CREE,25,283504,2 Average,25.25,424648,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $425 million. That figure was $116 million in IART's case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand Blackstone Mortgage Trust Inc (NYSE:BXMT) is the least popular one with only 15 bullish hedge fund positions. Integra Lifesciences Holdings Corp (NASDAQ:IART) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately IART wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IART investors were disappointed as the stock returned -33.4% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.