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Here’s What Hedge Funds Think About Healthequity Inc (HQY)

Abigail Fisher

Is Healthequity Inc (NASDAQ:HQY) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to find the winners in the stock market.

Is Healthequity Inc (NASDAQ:HQY) ready to rally soon? Prominent investors are taking an optimistic view. The number of long hedge fund positions moved up by 3 recently. Our calculations also showed that HQY isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

TUDOR INVESTMENT CORP

Let's take a look at the latest hedge fund action regarding Healthequity Inc (NASDAQ:HQY).

What does the smart money think about Healthequity Inc (NASDAQ:HQY)?

At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the second quarter of 2018. On the other hand, there were a total of 10 hedge funds with a bullish position in HQY a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HQY_apr2019

More specifically, Renaissance Technologies was the largest shareholder of Healthequity Inc (NASDAQ:HQY), with a stake worth $39.1 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $10.1 million. Citadel Investment Group, Royce & Associates, and PEAK6 Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, key money managers have jumped into Healthequity Inc (NASDAQ:HQY) headfirst. Diker Management, managed by Mark N. Diker, assembled the largest position in Healthequity Inc (NASDAQ:HQY). Diker Management had $1.2 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $1.2 million investment in the stock during the quarter. The other funds with brand new HQY positions are Paul Tudor Jones's Tudor Investment Corp, Dmitry Balyasny's Balyasny Asset Management, and George Zweig, Shane Haas and Ravi Chander's Signition LP.

Let's now review hedge fund activity in other stocks similar to Healthequity Inc (NASDAQ:HQY). We will take a look at CarGurus, Inc. (NASDAQ:CARG), Sterling Bancorp (NYSE:STL), Pebblebrook Hotel Trust (NYSE:PEB), and The New York Times Company (NYSE:NYT). All of these stocks' market caps match HQY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CARG,19,630327,2 STL,18,445056,-3 PEB,12,79370,1 NYT,32,820804,-2 Average,20.25,493889,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $494 million. That figure was $65 million in HQY's case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 12 bullish hedge fund positions. Healthequity Inc (NASDAQ:HQY) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately HQY wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); HQY investors were disappointed as the stock returned 10.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

Disclosure: None. This article was originally published at Insider Monkey.

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