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Were Hedge Funds Right About Dumping Castlight Health Inc (CSLT)?

Abigail Fisher

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Castlight Health Inc (NYSE:CSLT) based on that data and determine whether they were really smart about the stock.

Castlight Health Inc (NYSE:CSLT) has experienced a decrease in enthusiasm from smart money in recent months. CSLT was in 13 hedge funds' portfolios at the end of the first quarter of 2020. There were 17 hedge funds in our database with CSLT holdings at the end of the previous quarter. Our calculations also showed that CSLT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_339344" align="aligncenter" width="397"] William Martin of Raging Capital Management[/caption]

William Martin Raging Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 biggest gold mining companies to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a peek at the recent hedge fund action regarding Castlight Health Inc (NYSE:CSLT).

What does smart money think about Castlight Health Inc (NYSE:CSLT)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CSLT over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Castlight Health Inc (NYSE:CSLT) was held by Raging Capital Management, which reported holding $7.5 million worth of stock at the end of September. It was followed by Maverick Capital with a $6.5 million position. Other investors bullish on the company included Renaissance Technologies, Royce & Associates, and D E Shaw. In terms of the portfolio weights assigned to each position Raging Capital Management allocated the biggest weight to Castlight Health Inc (NYSE:CSLT), around 5.7% of its 13F portfolio. Maverick Capital is also relatively very bullish on the stock, earmarking 0.14 percent of its 13F equity portfolio to CSLT.

Seeing as Castlight Health Inc (NYSE:CSLT) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of funds that slashed their full holdings by the end of the first quarter. It's worth mentioning that Cliff Asness's AQR Capital Management cut the biggest position of the 750 funds watched by Insider Monkey, comprising about $0.1 million in stock. Donald Sussman's fund, Paloma Partners, also cut its stock, about $0.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the first quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Castlight Health Inc (NYSE:CSLT) but similarly valued. These stocks are Savara, Inc. (NASDAQ:SVRA), ObsEva SA (NASDAQ:OBSV), Caledonia Mining Corporation Plc (NYSE:CMCL), and Northeast Bank (NASDAQ:NBN). All of these stocks' market caps are closest to CSLT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SVRA,11,20457,-3 OBSV,8,11506,0 CMCL,3,2199,2 NBN,6,18679,1 Average,7,13210,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $19 million in CSLT's case. Savara, Inc. (NASDAQ:SVRA) is the most popular stock in this table. On the other hand Caledonia Mining Corporation Plc (NYSE:CMCL) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Castlight Health Inc (NYSE:CSLT) is more popular among hedge funds. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately CSLT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CSLT were disappointed as the stock returned -2.8% during the second quarter (through June 25th) 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.

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