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Did Hedge Funds Make The Right Call On Integra Lifesciences Holdings Corp (IART) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Integra Lifesciences Holdings Corp (NASDAQ:IART) and determine whether hedge funds skillfully traded this stock.

Is Integra Lifesciences Holdings Corp (NASDAQ:IART) an exceptional investment today? The smart money was taking an optimistic view. The number of bullish hedge fund bets increased by 5 in recent months. Our calculations also showed that IART 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.

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 58 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.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s view the recent hedge fund action surrounding Integra Lifesciences Holdings Corp (NASDAQ:IART).

What does smart money think about Integra Lifesciences Holdings Corp (NASDAQ:IART)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards IART 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 Integra Lifesciences Holdings Corp (NASDAQ:IART) was held by Fisher Asset Management, which reported holding $31.8 million worth of stock at the end of September. It was followed by D E Shaw with a $22.1 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Impax Asset Management. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Integra Lifesciences Holdings Corp (NASDAQ:IART), around 0.24% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, designating 0.22 percent of its 13F equity portfolio to IART.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Engineers Gate Manager, managed by Greg Eisner, established the biggest position in Integra Lifesciences Holdings Corp (NASDAQ:IART). Engineers Gate Manager had $1.6 million invested in the company at the end of the quarter. Mika Toikka’s AlphaCrest Capital Management also initiated a $0.7 million position during the quarter. The other funds with brand new IART positions are Mike Vranos’s Ellington, Jinghua Yan’s TwinBeech Capital, and Brandon Haley’s Holocene Advisors.

Let’s check out hedge fund activity in other stocks similar to Integra Lifesciences Holdings Corp (NASDAQ:IART). These stocks are Healthcare Realty Trust Inc (NYSE:HR), East West Bancorp, Inc. (NASDAQ:EWBC), Silicon Laboratories Inc. (NASDAQ:SLAB), and Deckers Outdoor Corp (NYSE:DECK). This group of stocks’ market caps are similar to IART’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HR 11 37769 -1
EWBC 25 180356 -4
SLAB 20 58924 -6
DECK 31 554069 -12
Average 21.75 207780 -5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $107 million in IART’s case. Deckers Outdoor Corp (NYSE:DECK) is the most popular stock in this table. On the other hand Healthcare Realty Trust Inc (NYSE:HR) is the least popular one with only 11 bullish hedge fund positions. Integra Lifesciences Holdings Corp (NASDAQ:IART) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately IART wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IART were disappointed as the stock returned 5.2% during the same time period 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 many of these stocks already outperformed the market so far this year.

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