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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Inovalon Holdings Inc (NASDAQ:INOV).
Is INOV a good stock to buy now? Inovalon Holdings Inc (NASDAQ:INOV) investors should pay attention to an increase in enthusiasm from smart money lately. Inovalon Holdings Inc (NASDAQ:INOV) was in 20 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 13 hedge funds in our database with INOV holdings at the end of June. Our calculations also showed that INOV isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
Ray Dalio of Bridgewater Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to take a look at the fresh hedge fund action surrounding Inovalon Holdings Inc (NASDAQ:INOV).
Do Hedge Funds Think INOV Is A Good Stock To Buy Now?
At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 54% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in INOV a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Inovalon Holdings Inc (NASDAQ:INOV) was held by Pura Vida Investments, which reported holding $30 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $23.4 million position. Other investors bullish on the company included Iron Triangle Partners, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Iron Triangle Partners allocated the biggest weight to Inovalon Holdings Inc (NASDAQ:INOV), around 3.84% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, setting aside 1.54 percent of its 13F equity portfolio to INOV.
Consequently, some big names have jumped into Inovalon Holdings Inc (NASDAQ:INOV) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most valuable position in Inovalon Holdings Inc (NASDAQ:INOV). Balyasny Asset Management had $6.1 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also made a $1.7 million investment in the stock during the quarter. The other funds with brand new INOV positions are Greg Martinez's Parkman Healthcare Partners, Ray Dalio's Bridgewater Associates, and Mark McMeans's Brasada Capital Management.
Let's now review hedge fund activity in other stocks similar to Inovalon Holdings Inc (NASDAQ:INOV). These stocks are Healthcare Realty Trust Inc (NYSE:HR), SSR Mining Inc. (NASDAQ:SSRM), GoHealth, Inc. (NASDAQ:GOCO), Silgan Holdings Inc. (NASDAQ:SLGN), NeoGenomics, Inc. (NASDAQ:NEO), Nexstar Media Group, Inc. (NASDAQ:NXST), and The Timken Company (NYSE:TKR). This group of stocks' market values are closest to INOV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HR,18,166333,-4 SSRM,18,306021,0 GOCO,17,633764,17 SLGN,15,207950,-4 NEO,17,78934,-2 NXST,41,731820,-1 TKR,34,240044,3 Average,22.9,337838,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.9 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $112 million in INOV's case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Silgan Holdings Inc. (NASDAQ:SLGN) is the least popular one with only 15 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. Our overall hedge fund sentiment score for INOV is 49.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately INOV wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); INOV investors were disappointed as the stock returned -26.4% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.