At Insider Monkey we follow nearly 750 of the best-performing investors and even though many of them lost money in the last couple of months of 2018 (some actually delivered very strong returns), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.
Inovalon Holdings Inc (NASDAQ:INOV) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds' portfolios at the end of the fourth quarter of 2018. 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 Cosan Limited (NYSE:CZZ), Q2 Holdings Inc (NYSE:QTWO), and Global Blood Therapeutics Inc (NASDAQ:GBT) to gather more data points.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a peek at the new hedge fund action regarding Inovalon Holdings Inc (NASDAQ:INOV).
What does the smart money think about Inovalon Holdings Inc (NASDAQ:INOV)?
Heading into the first quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards INOV over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Point72 Asset Management held the most valuable stake in Inovalon Holdings Inc (NASDAQ:INOV), which was worth $14.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $3.1 million worth of shares. Moreover, Citadel Investment Group, Millennium Management, and PDT Partners were also bullish on Inovalon Holdings Inc (NASDAQ:INOV), allocating a large percentage of their portfolios to this stock.
Because Inovalon Holdings Inc (NASDAQ:INOV) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of funds that slashed their entire stakes last quarter. At the top of the heap, Richard Mashaal's Rima Senvest Management dumped the largest investment of all the hedgies followed by Insider Monkey, totaling about $3.1 million in stock. Israel Englander's fund, Millennium Management, also dumped its stock, about $2.4 million worth. These bearish behaviors are important to note, as total 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 - not necessarily in the same industry as Inovalon Holdings Inc (NASDAQ:INOV) but similarly valued. These stocks are Cosan Limited (NYSE:CZZ), Q2 Holdings Inc (NYSE:QTWO), Global Blood Therapeutics Inc (NASDAQ:GBT), and Companhia Paranaense de Energia - COPEL (NYSE:ELP). This group of stocks' market values match INOV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CZZ,18,109958,5 QTWO,12,49605,-1 GBT,25,545078,0 ELP,8,34642,0 Average,15.75,184821,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $26 million in INOV's case. Global Blood Therapeutics Inc (NASDAQ:GBT) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia - COPEL (NYSE:ELP) is the least popular one with only 8 bullish hedge fund positions. Inovalon Holdings Inc (NASDAQ:INOV) 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 INOV wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); INOV investors were disappointed as the stock returned -8.5% 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.