Did Hedge Funds Make The Right Call On Invacare Corporation (IVC) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Invacare Corporation (NYSE:IVC) and determine whether the smart money was really smart about this stock.

Is Invacare Corporation (NYSE:IVC) a buy, sell, or hold? Money managers were becoming hopeful. The number of bullish hedge fund bets improved by 4 lately. Our calculations also showed that IVC 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). IVC was in 19 hedge funds’ portfolios at the end of March. There were 15 hedge funds in our database with IVC positions at the end of the previous quarter.

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.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to analyze the new hedge fund action regarding Invacare Corporation (NYSE:IVC).

How have hedgies been trading Invacare Corporation (NYSE:IVC)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in IVC over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Invacare Corporation (NYSE:IVC), with a stake worth $17.4 million reported as of the end of September. Trailing Renaissance Technologies was Pura Vida Investments, which amassed a stake valued at $11.9 million. Royce & Associates, Millennium Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pura Vida Investments allocated the biggest weight to Invacare Corporation (NYSE:IVC), around 3.04% of its 13F portfolio. North Run Capital is also relatively very bullish on the stock, dishing out 1.59 percent of its 13F equity portfolio to IVC.

Consequently, some big names were leading the bulls’ herd. ExodusPoint Capital, managed by Michael Gelband, assembled the largest position in Invacare Corporation (NYSE:IVC). ExodusPoint Capital had $0.3 million invested in the company at the end of the quarter. J. Daniel Plants’s Voce Capital also made a $0.1 million investment in the stock during the quarter. The following funds were also among the new IVC investors: Greg Eisner’s Engineers Gate Manager, Noam Gottesman’s GLG Partners, and Joel Greenblatt’s Gotham Asset Management.

Let’s go over hedge fund activity in other stocks similar to Invacare Corporation (NYSE:IVC). We will take a look at Diamond Offshore Drilling Inc (NYSE:DO), Seres Therapeutics Inc (NASDAQ:MCRB), Ellington Financial Inc. (NYSE:EFC), and ProPetro Holding Corp. (NYSE:PUMP). This group of stocks’ market caps match IVC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DO 10 30889 -6
MCRB 4 6070 -1
EFC 11 20301 -1
PUMP 13 31997 -10
Average 9.5 22314 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $62 million in IVC’s case. ProPetro Holding Corp. (NYSE:PUMP) is the most popular stock in this table. On the other hand Seres Therapeutics Inc (NASDAQ:MCRB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Invacare Corporation (NYSE:IVC) is more popular among hedge funds. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately IVC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IVC were disappointed as the stock returned -6.7% since the end of the first 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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