Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in ICU Medical, Inc. (NASDAQ:ICUI) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as NuVasive, Inc. (NASDAQ:NUVA), Companhia Paranaense de Energia (NYSE:ELP), and Physicians Realty Trust (NYSE:DOC) to gather more data points. Our calculations also showed that ICUI 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_258236" align="alignnone" width="600"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the new hedge fund action encompassing ICU Medical, Inc. (NASDAQ:ICUI).
How have hedgies been trading ICU Medical, Inc. (NASDAQ:ICUI)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 35 hedge funds with a bullish position in ICUI 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.
Among these funds, Nitorum Capital held the most valuable stake in ICU Medical, Inc. (NASDAQ:ICUI), which was worth $72.3 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $40.8 million worth of shares. Point72 Asset Management, AQR Capital Management, and Pura Vida Investments 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 Pura Vida Investments allocated the biggest weight to ICU Medical, Inc. (NASDAQ:ICUI), around 5.17% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, setting aside 4.21 percent of its 13F equity portfolio to ICUI.
Because ICU Medical, Inc. (NASDAQ:ICUI) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedgies who were dropping their positions entirely in the third quarter. It's worth mentioning that Christopher James's Partner Fund Management dropped the biggest stake of all the hedgies watched by Insider Monkey, worth an estimated $97.4 million in stock, and Paul Marshall and Ian Wace's Marshall Wace was right behind this move, as the fund dumped about $4.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to ICU Medical, Inc. (NASDAQ:ICUI). We will take a look at NuVasive, Inc. (NASDAQ:NUVA), Companhia Paranaense de Energia (NYSE:ELP), Physicians Realty Trust (NYSE:DOC), and Parsons Corporation (NYSE:PSN). All of these stocks' market caps match ICUI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NUVA,21,253261,-3 ELP,8,61388,-1 DOC,14,67660,2 PSN,12,74996,-3 Average,13.75,114326,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $235 million in ICUI's case. NuVasive, Inc. (NASDAQ:NUVA) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia (NYSE:ELP) is the least popular one with only 8 bullish hedge fund positions. ICU Medical, Inc. (NASDAQ:ICUI) is not the most popular stock in this group but hedge fund interest is still above average. 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 ICUI as the stock returned 17.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.