Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of March. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Castlight Health Inc (NYSE:CSLT), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Hedge fund interest in Castlight Health Inc (NYSE:CSLT) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CSLT to other stocks including GlycoMimetics, Inc. (NASDAQ:GLYC), ORBCOMM Inc (NASDAQ:ORBC), and Mercantile Bank Corp. (NASDAQ:MBWM) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's analyze the recent hedge fund action surrounding Castlight Health Inc (NYSE:CSLT).
How are hedge funds trading Castlight Health Inc (NYSE:CSLT)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards CSLT over the last 15 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Maverick Capital was the largest shareholder of Castlight Health Inc (NYSE:CSLT), with a stake worth $6.6 million reported as of the end of March. Trailing Maverick Capital was Royce & Associates, which amassed a stake valued at $5.7 million. Renaissance Technologies, D E Shaw, and GMT Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Since Castlight Health Inc (NYSE:CSLT) has faced a decline in interest from the smart money, we can see that there is a sect of funds that elected to cut their full holdings in the third quarter. At the top of the heap, William C. Martin's Raging Capital Management dropped the biggest position of the 700 funds watched by Insider Monkey, totaling an estimated $1.6 million in stock, and Phil Frohlich's Prescott Group Capital Management was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Castlight Health Inc (NYSE:CSLT). These stocks are GlycoMimetics, Inc. (NASDAQ:GLYC), ORBCOMM Inc (NASDAQ:ORBC), Mercantile Bank Corp. (NASDAQ:MBWM), and Overstock.com, Inc. (NASDAQ:OSTK). This group of stocks' market values are similar to CSLT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLYC,8,52173,-2 ORBC,16,95540,4 MBWM,7,27981,1 OSTK,13,20298,3 Average,11,48998,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $29 million in CSLT's case. ORBCOMM Inc (NASDAQ:ORBC) is the most popular stock in this table. On the other hand Mercantile Bank Corp. (NASDAQ:MBWM) is the least popular one with only 7 bullish hedge fund positions. Castlight Health Inc (NYSE:CSLT) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately CSLT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CSLT were disappointed as the stock returned -17.3% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.