Are Hedge Funds Right About Avanos Medical, Inc. (AVNS) ?

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Avanos Medical, Inc. (NYSE:AVNS).

Hedge fund interest in Avanos Medical, Inc. (NYSE:AVNS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Inter Parfums, Inc. (NASDAQ:IPAR), Great Western Bancorp Inc (NYSE:GWB), and Kinsale Capital Group, Inc. (NASDAQ:KNSL) to gather more data points. Our calculations also showed that AVNS isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the key hedge fund action encompassing Avanos Medical, Inc. (NYSE:AVNS).

How have hedgies been trading Avanos Medical, Inc. (NYSE:AVNS)?

At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in AVNS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with AVNS Positions

The largest stake in Avanos Medical, Inc. (NYSE:AVNS) was held by RGM Capital, which reported holding $32.8 million worth of stock at the end of March. It was followed by Select Equity Group with a $21.5 million position. Other investors bullish on the company included D E Shaw, Marshall Wace LLP, and Citadel Investment Group.

Judging by the fact that Avanos Medical, Inc. (NYSE:AVNS) has faced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of hedge funds that elected to cut their positions entirely by the end of the second quarter. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, valued at close to $10.4 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also sold off its stock, about $2.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Avanos Medical, Inc. (NYSE:AVNS) but similarly valued. We will take a look at Inter Parfums, Inc. (NASDAQ:IPAR), Great Western Bancorp Inc (NYSE:GWB), Kinsale Capital Group, Inc. (NASDAQ:KNSL), and Northwest Natural Holding Company (NYSE:NWN). This group of stocks’ market values are closest to AVNS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IPAR 17 92111 -5
GWB 9 42177 -5
KNSL 9 34088 0
NWN 12 80588 1
Average 11.75 62241 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $83 million in AVNS’s case. Inter Parfums, Inc. (NASDAQ:IPAR) is the most popular stock in this table. On the other hand Great Western Bancorp Inc (NYSE:GWB) is the least popular one with only 9 bullish hedge fund positions. Avanos Medical, Inc. (NYSE:AVNS) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AVNS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AVNS investors were disappointed as the stock returned -14.1% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

Disclosure: None. This article was originally published at Insider Monkey.