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Do Hedge Funds Love Inovalon Holdings Inc (INOV)?

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 have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Inovalon Holdings Inc (NASDAQ:INOV) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Inovalon Holdings Inc (NASDAQ:INOV) investors should pay attention to an increase in hedge fund interest of late. INOV was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with INOV positions at the end of the previous quarter. Our calculations also showed that INOV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the fresh hedge fund action encompassing Inovalon Holdings Inc (NASDAQ:INOV).

What does smart money think about Inovalon Holdings Inc (NASDAQ:INOV)?

Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 57% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in INOV over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, D E Shaw, managed by David E. Shaw, holds the biggest position in Inovalon Holdings Inc (NASDAQ:INOV). D E Shaw has a $7.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $5.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain Paul Marshall and Ian Wace’s Marshall Wace, Efrem Kamen’s Pura Vida Investments and David Harding’s Winton Capital Management. In terms of the portfolio weights assigned to each position Pura Vida Investments allocated the biggest weight to Inovalon Holdings Inc (NASDAQ:INOV), around 0.43% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.25 percent of its 13F equity portfolio to INOV.

As industrywide interest jumped, some big names were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, created the biggest position in Inovalon Holdings Inc (NASDAQ:INOV). Marshall Wace had $3.1 million invested in the company at the end of the quarter. Efrem Kamen’s Pura Vida Investments also initiated a $1.2 million position during the quarter. The other funds with brand new INOV positions are David Harding’s Winton Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s also examine hedge fund activity in other stocks similar to Inovalon Holdings Inc (NASDAQ:INOV). These stocks are The Ensign Group, Inc. (NASDAQ:ENSG), Genomic Health, Inc. (NASDAQ:GHDX), Kennametal Inc. (NYSE:KMT), and Nelnet, Inc. (NYSE:NNI). This group of stocks’ market caps resemble INOV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENSG 16 118684 2
GHDX 16 946976 -2
KMT 25 288624 5
NNI 11 86338 -2
Average 17 360156 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $360 million. That figure was $21 million in INOV’s case. Kennametal Inc. (NYSE:KMT) is the most popular stock in this table. On the other hand Nelnet, Inc. (NYSE:NNI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Inovalon Holdings Inc (NASDAQ:INOV) is even less popular than NNI. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on INOV, though not to the same extent, as the stock returned 9.8% during the fourth quarter (through 11/30) and outperformed the market as well.

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

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