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 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority 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 Steris Plc (NYSE:STE).
Steris Plc (NYSE:STE) was in 21 hedge funds' portfolios at the end of the first quarter of 2019. STE shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. There were 22 hedge funds in our database with STE positions at the end of the previous quarter. Our calculations also showed that STE isn't among the 30 most popular stocks among hedge funds.
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' 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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a glance at the recent hedge fund action surrounding Steris Plc (NYSE:STE).
What have hedge funds been doing with Steris Plc (NYSE:STE)?
Heading into the second quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the fourth quarter of 2018. By comparison, 17 hedge funds held shares or bullish call options in STE a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Steris Plc (NYSE:STE) was held by Fisher Asset Management, which reported holding $150.4 million worth of stock at the end of March. It was followed by Millennium Management with a $55.3 million position. Other investors bullish on the company included Polar Capital, Echo Street Capital Management, and GAMCO Investors.
Judging by the fact that Steris Plc (NYSE:STE) has experienced falling interest from hedge fund managers, it's easy to see that there exists a select few hedgies that decided to sell off their positions entirely by the end of the third quarter. Interestingly, Cliff Asness's AQR Capital Management cut the biggest position of all the hedgies followed by Insider Monkey, valued at about $7 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund sold off about $4.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Steris Plc (NYSE:STE) but similarly valued. We will take a look at Pinnacle West Capital Corporation (NYSE:PNW), DexCom, Inc. (NASDAQ:DXCM), Jack Henry & Associates, Inc. (NASDAQ:JKHY), and Hasbro, Inc. (NASDAQ:HAS). All of these stocks' market caps are closest to STE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PNW,24,720582,-2 DXCM,33,804444,2 JKHY,17,179416,-4 HAS,18,249772,-1 Average,23,488554,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $489 million. That figure was $320 million in STE's case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand Jack Henry & Associates, Inc. (NASDAQ:JKHY) is the least popular one with only 17 bullish hedge fund positions. Steris Plc (NYSE:STE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on STE as the stock returned 4.2% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.