The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought STAAR Surgical Company (NASDAQ:STAA) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is STAAR Surgical Company (NASDAQ:STAA) a healthy stock for your portfolio? The best stock pickers were taking a bearish view. The number of bullish hedge fund bets dropped by 1 in recent months. STAAR Surgical Company (NASDAQ:STAA) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistics is 24. Our calculations also showed that STAA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 21 hedge funds in our database with STAA positions at the end of the first quarter. 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 58 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.
David Harding of Winton Capital Management
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's take a look at the fresh hedge fund action surrounding STAAR Surgical Company (NASDAQ:STAA).
What does smart money think about STAAR Surgical Company (NASDAQ:STAA)?
Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STAA over the last 20 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Broadwood Capital, managed by Neal C. Bradsher, holds the most valuable position in STAAR Surgical Company (NASDAQ:STAA). Broadwood Capital has a $664.6 million position in the stock, comprising 52% of its 13F portfolio. The second largest stake is held by Palo Alto Investors, led by William Leland Edwards, holding a $173.6 million position; 10.4% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions include Efrem Kamen's Pura Vida Investments, and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Broadwood Capital allocated the biggest weight to STAAR Surgical Company (NASDAQ:STAA), around 51.95% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, designating 10.42 percent of its 13F equity portfolio to STAA.
Because STAAR Surgical Company (NASDAQ:STAA) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that slashed their entire stakes by the end of the second quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP dropped the largest investment of all the hedgies watched by Insider Monkey, valued at about $8.1 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also dumped its stock, about $1.1 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks similar to STAAR Surgical Company (NASDAQ:STAA). We will take a look at Goosehead Insurance, Inc. (NASDAQ:GSHD), FirstCash, Inc. (NASDAQ:FCFS), Varonis Systems Inc (NASDAQ:VRNS), Insmed Incorporated (NASDAQ:INSM), MGIC Investment Corporation (NYSE:MTG), NorthWestern Corporation (NYSE:NWE), and Mantech International Corp (NASDAQ:MANT). This group of stocks' market caps resemble STAA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSHD,15,114944,4 FCFS,22,144073,6 VRNS,28,604539,8 INSM,30,613700,10 MTG,40,262992,-1 NWE,22,96622,3 MANT,16,29262,-1 Average,24.7,266590,4.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $267 million. That figure was $921 million in STAA's case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 15 bullish hedge fund positions. STAAR Surgical Company (NASDAQ:STAA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for STAA is 29. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately STAA wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); STAA investors were disappointed as the stock returned -8.1% in 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 10 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.