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 Community Health Systems (NYSE:CYH) and determine whether hedge funds skillfully traded this stock.
Is Community Health Systems (NYSE:CYH) going to take off soon? The smart money was becoming less hopeful. The number of long hedge fund bets were cut by 2 recently. Community Health Systems (NYSE:CYH) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 59. Our calculations also showed that CYH isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Today there are plenty of tools stock traders put to use to analyze their stock investments. Some of the most underrated tools are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top investment managers can trounce the broader indices by a healthy amount (see the details here).
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a look at the key hedge fund action regarding Community Health Systems (NYSE:CYH).
Hedge fund activity in Community Health Systems (NYSE:CYH)
At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the first quarter of 2020. By comparison, 13 hedge funds held shares or bullish call options in CYH a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Community Health Systems (NYSE:CYH) was held by Shanda Asset Management, which reported holding $82.7 million worth of stock at the end of September. It was followed by Elliott Investment Management with a $13.5 million position. Other investors bullish on the company included Royce & Associates, Saba Capital, and Centerbridge Partners. In terms of the portfolio weights assigned to each position Shanda Asset Management allocated the biggest weight to Community Health Systems (NYSE:CYH), around 7.46% of its 13F portfolio. Centerbridge Partners is also relatively very bullish on the stock, designating 1.09 percent of its 13F equity portfolio to CYH.
Because Community Health Systems (NYSE:CYH) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies who were dropping their full holdings last quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management sold off the biggest stake of the 750 funds watched by Insider Monkey, comprising about $4.3 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund sold off about $0.5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Community Health Systems (NYSE:CYH) but similarly valued. These stocks are MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT), U.S. Auto Parts Network, Inc. (NASDAQ:PRTS), Navigator Holdings Ltd (NYSE:NVGS), Loop Industries, Inc. (NASDAQ:LOOP), Cytosorbents Corp (NASDAQ:CTSO), Hingham Institution for Savings (NASDAQ:HIFS), and Crescent Capital BDC, Inc. (NASDAQ:CCAP). This group of stocks’ market valuations match CYH’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $141 million in CYH’s case. MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) is the most popular stock in this table. On the other hand Hingham Institution for Savings (NASDAQ:HIFS) is the least popular one with only 1 bullish hedge fund positions. Community Health Systems (NYSE:CYH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CYH is 54.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on CYH as the stock returned 40.2% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.