Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Bio-Rad Laboratories, Inc. (NYSE:BIO) investors should be aware of a decrease in hedge fund sentiment in recent months. Our calculations also showed that BIO isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the latest hedge fund action encompassing Bio-Rad Laboratories, Inc. (NYSE:BIO).
What have hedge funds been doing with Bio-Rad Laboratories, Inc. (NYSE:BIO)?
At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. By comparison, 36 hedge funds held shares or bullish call options in BIO a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Bio-Rad Laboratories, Inc. (NYSE:BIO) was held by Millennium Management, which reported holding $164.4 million worth of stock at the end of March. It was followed by Point72 Asset Management with a $89.1 million position. Other investors bullish on the company included Polar Capital, Fisher Asset Management, and Ariel Investments.
Seeing as Bio-Rad Laboratories, Inc. (NYSE:BIO) has experienced bearish sentiment from hedge fund managers, it's safe to say that there was a specific group of hedgies that decided to sell off their entire stakes by the end of the second quarter. Intriguingly, Andrew Sandler's Sandler Capital Management cut the biggest stake of the 750 funds watched by Insider Monkey, comprising an estimated $5.9 million in stock. Andrew Feldstein and Stephen Siderow's fund, Blue Mountain Capital, also dumped its stock, about $5.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Bio-Rad Laboratories, Inc. (NYSE:BIO) but similarly valued. These stocks are Fair Isaac Corporation (NYSE:FICO), Booz Allen Hamilton Holding Corporation (NYSE:BAH), American Financial Group, Inc. (NYSE:AFG), and Ubiquiti Networks Inc (NASDAQ:UBNT). This group of stocks' market caps match BIO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FICO,34,730765,7 BAH,31,369488,12 AFG,22,366752,-8 UBNT,17,505790,0 Average,26,493199,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $493 million. That figure was $954 million in BIO's case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand Ubiquiti Networks Inc (NASDAQ:UBNT) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Bio-Rad Laboratories, Inc. (NYSE:BIO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on BIO as the stock returned 6.4% during Q3 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.