There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Lifevantage Corporation (NASDAQ:LFVN).
Hedge fund interest in Lifevantage Corporation (NASDAQ:LFVN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LFVN to other stocks including Foamix Pharmaceuticals Ltd (NASDAQ:FOMX), Unity Bancorp, Inc. (NASDAQ:UNTY), and Net 1 UEPS Technologies Inc (NASDAQ:UEPS) to get a better sense of its popularity.
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 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 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.
[caption id="attachment_758442" align="aligncenter" width="450"] Michael Platt of Bluecrest Capital Management[/caption]
We're going to take a glance at the recent hedge fund action surrounding Lifevantage Corporation (NASDAQ:LFVN).
What have hedge funds been doing with Lifevantage Corporation (NASDAQ:LFVN)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LFVN over the last 15 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.
More specifically, Renaissance Technologies was the largest shareholder of Lifevantage Corporation (NASDAQ:LFVN), with a stake worth $15.8 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $2.6 million. Arrowstreet Capital, Laurion Capital Management, and ExodusPoint Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Lifevantage Corporation (NASDAQ:LFVN) has experienced bearish sentiment from hedge fund managers, it's easy to see that there was a specific group of fund managers that elected to cut their positions entirely heading into Q3. It's worth mentioning that Mark Broach's Manatuck Hill Partners dumped the biggest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $2.6 million in call options. Ken Griffin's fund, Citadel Investment Group, also dropped its call options, about $0.3 million worth. These moves are intriguing to say the least, 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 Lifevantage Corporation (NASDAQ:LFVN) but similarly valued. These stocks are Foamix Pharmaceuticals Ltd (NASDAQ:FOMX), Unity Bancorp, Inc. (NASDAQ:UNTY), Net 1 UEPS Technologies Inc (NASDAQ:UEPS), and PICO Holdings Inc (NASDAQ:PICO). This group of stocks' market valuations are similar to LFVN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FOMX,15,66772,0 UNTY,4,29798,0 UEPS,10,68145,-3 PICO,7,24519,-1 Average,9,47309,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $24 million in LFVN's case. Foamix Pharmaceuticals Ltd (NASDAQ:FOMX) is the most popular stock in this table. On the other hand Unity Bancorp, Inc. (NASDAQ:UNTY) is the least popular one with only 4 bullish hedge fund positions. Lifevantage Corporation (NASDAQ:LFVN) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately LFVN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LFVN were disappointed as the stock returned -15% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.