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Do Hedge Funds Love SurModics, Inc. (SRDX)?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtSurModics, Inc. (NASDAQ:SRDX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is SurModics, Inc. (NASDAQ:SRDX) a buy right now? Investors who are in the know were taking a bearish view. The number of long hedge fund positions dropped by 5 recently. Our calculations also showed that SRDX 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). SRDX was in 12 hedge funds’ portfolios at the end of March. There were 17 hedge funds in our database with SRDX holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are numerous metrics stock market investors employ to analyze stocks. A duo of the less utilized metrics are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top investment managers can beat the broader indices by a significant amount (see the details here).

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the fresh hedge fund action encompassing SurModics, Inc. (NASDAQ:SRDX).

What have hedge funds been doing with SurModics, Inc. (NASDAQ:SRDX)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the fourth quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in SRDX a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Douglas T. Granat’s Trigran Investments has the number one position in SurModics, Inc. (NASDAQ:SRDX), worth close to $64.5 million, accounting for 14.2% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $28.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish contain Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Trigran Investments allocated the biggest weight to SurModics, Inc. (NASDAQ:SRDX), around 14.15% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.15 percent of its 13F equity portfolio to SRDX.

Seeing as SurModics, Inc. (NASDAQ:SRDX) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds who were dropping their full holdings by the end of the first quarter. It’s worth mentioning that Peter Muller’s PDT Partners sold off the biggest stake of all the hedgies watched by Insider Monkey, valued at about $0.6 million in stock. Donald Sussman’s fund, Paloma Partners, also dropped its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 5 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to SurModics, Inc. (NASDAQ:SRDX). These stocks are Central Pacific Financial Corp. (NYSE:CPF), Kura Oncology, Inc. (NASDAQ:KURA), Brinker International, Inc. (NYSE:EAT), and Apollo Investment Corp. (NASDAQ:AINV). All of these stocks’ market caps are closest to SRDX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPF 16 47370 -1
KURA 23 121653 1
EAT 16 47292 -5
AINV 10 19432 1
Average 16.25 58937 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $120 million in SRDX’s case. Kura Oncology, Inc. (NASDAQ:KURA) is the most popular stock in this table. On the other hand Apollo Investment Corp. (NASDAQ:AINV) is the least popular one with only 10 bullish hedge fund positions. SurModics, Inc. (NASDAQ:SRDX) is not the least popular stock in this group but hedge fund interest is still below average. 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on SRDX as the stock returned 29.8% during the second quarter and outperformed the market by an even larger margin.

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