It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Myriad Genetics, Inc. (NASDAQ:MYGN).
Myriad Genetics, Inc. (NASDAQ:MYGN) shareholders have witnessed a decrease in hedge fund sentiment recently. MYGN was in 19 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 21 hedge funds in our database with MYGN holdings at the end of the previous quarter. Our calculations also showed that MYGN 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.
Let's take a look at the latest hedge fund action encompassing Myriad Genetics, Inc. (NASDAQ:MYGN).
Hedge fund activity in Myriad Genetics, Inc. (NASDAQ:MYGN)
At Q4's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the second quarter of 2018. On the other hand, there were a total of 20 hedge funds with a bullish position in MYGN a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, D. E. Shaw's D E Shaw has the biggest position in Myriad Genetics, Inc. (NASDAQ:MYGN), worth close to $114 million, amounting to 0.2% of its total 13F portfolio. On D E Shaw's heels is Consonance Capital Management, managed by Mitchell Blutt, which holds a $68.9 million position; the fund has 5.1% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions consist of Steve Cohen's Point72 Asset Management, Israel Englander's Millennium Management and Paul Marshall and Ian Wace's Marshall Wace LLP.
Seeing as Myriad Genetics, Inc. (NASDAQ:MYGN) has witnessed a decline in interest from hedge fund managers, it's safe to say that there was a specific group of hedge funds that slashed their positions entirely by the end of the third quarter. It's worth mentioning that Noam Gottesman's GLG Partners dropped the biggest position of the 700 funds monitored by Insider Monkey, totaling an estimated $6.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $5.3 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Myriad Genetics, Inc. (NASDAQ:MYGN) but similarly valued. These stocks are HB Fuller Co (NYSE:FUL), Inovalon Holdings Inc (NASDAQ:INOV), Cosan Limited (NYSE:CZZ), and Q2 Holdings Inc (NYSE:QTWO). This group of stocks' market caps are closest to MYGN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FUL,14,118109,6 INOV,13,26035,0 CZZ,18,109958,5 QTWO,12,49605,-1 Average,14.25,75927,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $260 million in MYGN's case. Cosan Limited (NYSE:CZZ) is the most popular stock in this table. On the other hand Q2 Holdings Inc (NYSE:QTWO) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Myriad Genetics, Inc. (NASDAQ:MYGN) is more popular among hedge funds. 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 MYGN wasn't nearly as popular as these 15 stock and hedge funds that were betting on MYGN were disappointed as the stock returned 9.8% 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.