Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Tivity Health, Inc. (NASDAQ:TVTY) was in 20 hedge funds' portfolios at the end of March. TVTY investors should pay attention to a decrease in enthusiasm from smart money recently. There were 21 hedge funds in our database with TVTY positions at the end of the previous quarter. Our calculations also showed that tvty isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
Let's take a gander at the key hedge fund action regarding Tivity Health, Inc. (NASDAQ:TVTY).
How have hedgies been trading Tivity Health, Inc. (NASDAQ:TVTY)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TVTY over the last 15 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of Tivity Health, Inc. (NASDAQ:TVTY), with a stake worth $42.1 million reported as of the end of March. Trailing D E Shaw was Marshall Wace LLP, which amassed a stake valued at $28.1 million. Millennium Management, Renaissance Technologies, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Tivity Health, Inc. (NASDAQ:TVTY) has experienced a decline in interest from the smart money, it's safe to say that there exists a select few money managers who sold off their full holdings in the third quarter. At the top of the heap, Wayne Cooperman's Cobalt Capital Management dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $1.5 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund sold off about $1.3 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Tivity Health, Inc. (NASDAQ:TVTY). We will take a look at SeaDrill Limited (NYSE:SDRL), AdvanSix Inc. (NYSE:ASIX), Coeur Mining, Inc. (NYSE:CDE), and Connecticut Water Service, Inc. (NASDAQ:CTWS). This group of stocks' market values resemble TVTY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SDRL,20,249408,-2 ASIX,19,147109,0 CDE,11,25132,-2 CTWS,4,22160,-1 Average,13.5,110952,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $167 million in TVTY's case. SeaDrill Limited (NYSE:SDRL) is the most popular stock in this table. On the other hand Connecticut Water Service, Inc. (NASDAQ:CTWS) is the least popular one with only 4 bullish hedge fund positions. Tivity Health, Inc. (NASDAQ:TVTY) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on TVTY as the stock returned 4% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.