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Evolent Health Inc (EVH): Hedge Funds In Wait-and-See Mode

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Evolent Health Inc (NYSE:EVH).

Hedge fund interest in Evolent Health Inc (NYSE:EVH) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare EVH to other stocks including United Natural Foods, Inc. (NASDAQ:UNFI), Agilysys, Inc. (NASDAQ:AGYS), and United Insurance Holdings Corp.(NDA) (NASDAQ:UIHC) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

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. We’re going to view the recent hedge fund action encompassing Evolent Health Inc (NYSE:EVH).

How are hedge funds trading Evolent Health Inc (NYSE:EVH)?

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in EVH a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EVH A Good Stock To Buy?

Among these funds, Endurant Capital Management held the most valuable stake in Evolent Health Inc (NYSE:EVH), which was worth $65.4 million at the end of the third quarter. On the second spot was Sectoral Asset Management which amassed $11.4 million worth of shares. Royce & Associates, Levin Capital Strategies, and Millennium Management 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 Endurant Capital Management allocated the biggest weight to Evolent Health Inc (NYSE:EVH), around 19.46% of its 13F portfolio. Voce Capital is also relatively very bullish on the stock, designating 2.7 percent of its 13F equity portfolio to EVH.

Seeing as Evolent Health Inc (NYSE:EVH) has experienced declining sentiment from the smart money, it’s easy to see that there is a sect of fund managers that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that David E. Shaw’s D E Shaw dumped the biggest position of all the hedgies followed by Insider Monkey, worth close to $0.5 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $0.2 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Evolent Health Inc (NYSE:EVH). We will take a look at United Natural Foods, Inc. (NASDAQ:UNFI), Agilysys, Inc. (NASDAQ:AGYS), United Insurance Holdings Corp.(NDA) (NASDAQ:UIHC), and Huami Corporation (NYSE:HMI). This group of stocks’ market caps resemble EVH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNFI 10 35452 -4
AGYS 16 128890 3
UIHC 11 13753 3
HMI 4 6091 -2
Average 10.25 46047 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $116 million in EVH’s case. Agilysys, Inc. (NASDAQ:AGYS) is the most popular stock in this table. On the other hand Huami Corporation (NYSE:HMI) is the least popular one with only 4 bullish hedge fund positions. Evolent Health Inc (NYSE:EVH) 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 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. Unfortunately EVH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EVH were disappointed as the stock returned 0.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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