Just recently, Bank of America revealed that hedge funds had been net buyers of equities during the first trading weeks of 2016, whereas the Wall Street Journal wrote that numerous hedge funds had been “stockpiling cash” in anticipation of more downside. That does not necessarily mean that one of the two statements is erroneous, as hedge funds might have different perceptions on where U.S equities are heading. As part of a broader stock analysis process, examining hedge funds’ moves may offer interesting insight about certain companies. Imagine that a hedge fund acquires more shares of a company that you were thinking of shorting, which could make you think outside the box and study the company in a new light, allowing you to identify strong reasons for not going short (certain filings explicitly reveal hedge funds’ reasoning behind particular investment decisions). Having said that, the following article will discuss several filings submitted with the SEC by Conan Laughlin, Paul Singer, and other hedge fund managers.
Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details here).
Let’s begin our discussion by looking into the 13G filing submitted by Peter S. Park’s Park West Asset Management, which discloses a new position of 904,600 shares in Sientra Inc. (NASDAQ:SIEN). The freshly-initiated position accounts for 5.0% of the company’s outstanding shares. The medical aesthetics company has seen its shares decline by 45% over the past year, mainly owing to the suspended distribution of the company’s Silimed products by the U.K’s Medicines and Healthcare products Regulatory Agency. The company’s primary products include silicone gel breast implants. Meanwhile, the aforementioned suspension followed an inspection at Silimed’s manufacturing facilities in Brazil by a notified body under EU regulation, which found some issues relating to particles discovered on breast implants. Sientra Inc. (NASDAQ:SIEN)’s net sales for the first nine months of 2015 totaled $36.57 million, up from $32.62 million reported for the same period of 2014. However, it remains to be seen how the recent events concerning Silimed will impact the company’s top-line results in the upcoming quarters. Ten hedge funds from our system had positions in the company at the end of the September quarter, amassing 38.20% of its outstanding common stock. Jacob Gottlieb’s Visium Asset Management reported owning 1.78 million shares of Sientra Inc. (NASDAQ:SIEN) through its 13F for the third quarter.
Let’s head to the next two pages of this article, where we discuss the remaining filings under question submitted with the SEC.