At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Mednax Inc. (NYSE:MD) was in 23 hedge funds' portfolios at the end of March. MD investors should pay attention to a decrease in hedge fund interest lately. There were 25 hedge funds in our database with MD holdings at the end of the previous quarter. Our calculations also showed that md 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 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. 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 peek at the latest hedge fund action surrounding Mednax Inc. (NYSE:MD).
How have hedgies been trading Mednax Inc. (NYSE:MD)?
Heading into the second quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in MD a year ago. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Mednax Inc. (NYSE:MD) was held by D E Shaw, which reported holding $67.6 million worth of stock at the end of March. It was followed by Pzena Investment Management with a $62.2 million position. Other investors bullish on the company included P2 Capital Partners, Blue Harbour Group, and AQR Capital Management.
Because Mednax Inc. (NYSE:MD) has faced falling interest from the aggregate hedge fund industry, it's safe to say that there is a sect of fund managers that decided to sell off their full holdings heading into Q3. Intriguingly, Paul Singer's Elliott Management sold off the largest investment of all the hedgies tracked by Insider Monkey, worth about $56 million in stock. Andrew Feldstein and Stephen Siderow's fund, Blue Mountain Capital, also sold off its stock, about $0.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to Mednax Inc. (NYSE:MD). These stocks are Inter Parfums, Inc. (NASDAQ:IPAR), Edgewell Personal Care Company (NYSE:EPC), Granite Real Estate Investment Trust (NYSE:GRP), and Franklin Electric Co., Inc. (NASDAQ:FELE). This group of stocks' market caps resemble MD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IPAR,22,98080,11 EPC,19,179921,1 GRP,13,137058,2 FELE,15,232249,6 Average,17.25,161827,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $298 million in MD's case. Inter Parfums, Inc. (NASDAQ:IPAR) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Mednax Inc. (NYSE:MD) is more popular among hedge funds. 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. Unfortunately MD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MD were disappointed as the stock returned -7.8% 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 in Q2.
Disclosure: None. This article was originally published at Insider Monkey.