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Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Luminex Corporation (NASDAQ:LMNX) is a good investment right now.
Luminex Corporation (NASDAQ:LMNX) investors should be aware of an increase in hedge fund interest recently. LMNX was in 17 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 16 hedge funds in our database with LMNX positions at the end of the previous quarter. Our calculations also showed that LMNX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
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Kevin Kotler of Broadfin Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a gander at the key hedge fund action surrounding Luminex Corporation (NASDAQ:LMNX).
How have hedgies been trading Luminex Corporation (NASDAQ:LMNX)?
Heading into the first quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LMNX 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.
According to Insider Monkey's hedge fund database, Robert G. Moses's RGM Capital has the largest position in Luminex Corporation (NASDAQ:LMNX), worth close to $82.1 million, comprising 4.7% of its total 13F portfolio. On RGM Capital's heels is Renaissance Technologies, with a $53.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions consist of Israel Englander's Millennium Management, D. E. Shaw's D E Shaw and Kevin Kotler's Broadfin Capital. In terms of the portfolio weights assigned to each position RGM Capital allocated the biggest weight to Luminex Corporation (NASDAQ:LMNX), around 4.69% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, dishing out 1.62 percent of its 13F equity portfolio to LMNX.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Broadfin Capital, managed by Kevin Kotler, established the biggest position in Luminex Corporation (NASDAQ:LMNX). Broadfin Capital had $4.8 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $1.3 million position during the quarter. The other funds with brand new LMNX positions are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Noam Gottesman's GLG Partners, and Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Luminex Corporation (NASDAQ:LMNX) but similarly valued. We will take a look at Odonate Therapeutics, Inc. (NASDAQ:ODT), Lindsay Corporation (NYSE:LNN), Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS), and 3D Systems Corporation (NYSE:DDD). This group of stocks' market valuations resemble LMNX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ODT,15,556075,1 LNN,9,202475,1 VLRS,11,114895,3 DDD,19,48902,6 Average,13.5,230587,2.75 [/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 $231 million. That figure was $180 million in LMNX's case. 3D Systems Corporation (NYSE:DDD) is the most popular stock in this table. On the other hand Lindsay Corporation (NYSE:LNN) is the least popular one with only 9 bullish hedge fund positions. Luminex Corporation (NASDAQ:LMNX) is not the most popular stock in this group but hedge fund interest is still above average. 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on LMNX as the stock returned 54.2% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.