The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Medifast, Inc. (NYSE:MED) and find out how it is affected by hedge funds' moves.
Medifast, Inc. (NYSE:MED) was in 19 hedge funds' portfolios at the end of June. MED investors should be aware of a decrease in hedge fund sentiment of late. There were 28 hedge funds in our database with MED holdings at the end of the previous quarter. Our calculations also showed that MED isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
According to most market participants, hedge funds are viewed as slow, old financial tools of yesteryear. While there are greater than 8000 funds trading at the moment, We choose to focus on the aristocrats of this club, about 750 funds. These hedge fund managers preside over bulk of the hedge fund industry's total capital, and by observing their best picks, Insider Monkey has revealed a number of investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 take a gander at the key hedge fund action encompassing Medifast, Inc. (NYSE:MED).
Hedge fund activity in Medifast, Inc. (NYSE:MED)
At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in MED 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.
The largest stake in Medifast, Inc. (NYSE:MED) was held by Renaissance Technologies, which reported holding $88.6 million worth of stock at the end of March. It was followed by Hoplite Capital Management with a $52.5 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and AQR Capital Management.
Seeing as Medifast, Inc. (NYSE:MED) has experienced a decline in interest from the aggregate hedge fund industry, it's easy to see that there were a few hedge funds that decided to sell off their full holdings in the second quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $21.9 million in stock, and Joel Ramin's 12 West Capital Management was right behind this move, as the fund dumped about $14.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 9 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Medifast, Inc. (NYSE:MED) but similarly valued. These stocks are ICF International Inc (NASDAQ:ICFI), trivago N.V. (NASDAQ:TRVG), Crocs, Inc. (NASDAQ:CROX), and Athenex, Inc. (NASDAQ:ATNX). This group of stocks' market valuations are closest to MED's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ICFI,15,50787,-2 TRVG,9,148988,-2 CROX,21,345004,-4 ATNX,10,395521,2 Average,13.75,235075,-1.5 [/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 $235 million. That figure was $261 million in MED's case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand trivago N.V. (NASDAQ:TRVG) is the least popular one with only 9 bullish hedge fund positions. Medifast, Inc. (NYSE:MED) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MED wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MED were disappointed as the stock returned -18.7% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.