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Did Hedge Funds Drop The Ball On Chemed Corporation (CHE) ?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Chemed Corporation (NYSE:CHE)? The smart money sentiment can provide an answer to this question.

Hedge fund interest in Chemed Corporation (NYSE:CHE) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CHE to other stocks including Parsley Energy Inc (NYSE:PE), Oshkosh Corporation (NYSE:OSK), and James Hardie Industries plc (NYSE:JHX) to get a better sense of its popularity. Our calculations also showed that CHE 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.

If you’d ask most market participants, hedge funds are seen as underperforming, old investment vehicles of the past. While there are more than 8000 funds with their doors open today, We choose to focus on the top tier of this group, approximately 750 funds. It is estimated that this group of investors shepherd the lion’s share of the hedge fund industry’s total capital, and by tracking their inimitable picks, Insider Monkey has uncovered many investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

CHE_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 gander at the new hedge fund action regarding Chemed Corporation (NYSE:CHE).

What does smart money think about Chemed Corporation (NYSE:CHE)?

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHE over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Noam Gottesman GLG Partners

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Fisher’s Fisher Asset Management has the most valuable position in Chemed Corporation (NYSE:CHE), worth close to $125.9 million, corresponding to 0.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $86.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise Mario Gabelli’s GAMCO Investors, Noam Gottesman’s GLG Partners and Ken Griffin’s Citadel Investment Group.

Due to the fact that Chemed Corporation (NYSE:CHE) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few funds that slashed their positions entirely last quarter. It’s worth mentioning that Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, totaling close to $13 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund dropped about $5 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Chemed Corporation (NYSE:CHE) but similarly valued. These stocks are Parsley Energy Inc (NYSE:PE), Oshkosh Corporation (NYSE:OSK), James Hardie Industries plc (NYSE:JHX), and Manpowergroup Inc (NYSE:MAN). All of these stocks’ market caps are similar to CHE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PE 36 785649 2
OSK 24 402471 0
JHX 2 4519 0
MAN 17 442610 -2
Average 19.75 408812 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $406 million in CHE’s case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 2 bullish hedge fund positions. Chemed Corporation (NYSE:CHE) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CHE as the stock returned 15.8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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