U.S. Markets closed

OrthoPediatrics Corp. (KIDS): Hedge Funds In Wait-and-See Mode

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 OrthoPediatrics Corp. (NASDAQ:KIDS).

OrthoPediatrics Corp. (NASDAQ:KIDS) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds' portfolios at the end of June. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Bank of Marin Bancorp (NASDAQ:BMRC), Aurora Mobile Limited (NASDAQ:JG), and Bridge Bancorp, Inc. (NASDAQ:BDGE) to gather more data points. Our calculations also showed that KIDS isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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' 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.

Richard Driehaus

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to take a look at the recent hedge fund action surrounding OrthoPediatrics Corp. (NASDAQ:KIDS).

How have hedgies been trading OrthoPediatrics Corp. (NASDAQ:KIDS)?

At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in KIDS a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

KIDS_nov2019

The largest stake in OrthoPediatrics Corp. (NASDAQ:KIDS) was held by Driehaus Capital, which reported holding $17.8 million worth of stock at the end of March. It was followed by Pura Vida Investments with a $5.6 million position. Other investors bullish on the company included Royce & Associates, Millennium Management, and D E Shaw.

Judging by the fact that OrthoPediatrics Corp. (NASDAQ:KIDS) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of funds that elected to cut their positions entirely last quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the biggest position of the "upper crust" of funds watched by Insider Monkey, totaling close to $0.4 million in stock. David Harding's fund, Winton Capital Management, also dropped its stock, about $0.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as OrthoPediatrics Corp. (NASDAQ:KIDS) but similarly valued. These stocks are Bank of Marin Bancorp (NASDAQ:BMRC), Aurora Mobile Limited (NASDAQ:JG), Bridge Bancorp, Inc. (NASDAQ:BDGE), and Nexgen Energy Ltd. (NYSE:NXE). All of these stocks' market caps resemble KIDS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BMRC,5,18128,-2 JG,1,18,0 BDGE,10,95847,-1 NXE,8,27179,0 Average,6,35293,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $35 million in KIDS's case. Bridge Bancorp, Inc. (NASDAQ:BDGE) is the most popular stock in this table. On the other hand Aurora Mobile Limited (NASDAQ:JG) is the least popular one with only 1 bullish hedge fund positions. OrthoPediatrics Corp. (NASDAQ:KIDS) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately KIDS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on KIDS were disappointed as the stock returned -9.6% during the third quarter 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 many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content