The financial regulations require hedge funds and wealthy investors that crossed the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 28th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded HealthStream, Inc. (NASDAQ:HSTM) based on those filings.
HealthStream, Inc. (NASDAQ:HSTM) was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. HSTM shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 14 hedge funds in our database with HSTM holdings at the end of the previous quarter. Our calculations also showed that HSTM isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the key hedge fund action encompassing HealthStream, Inc. (NASDAQ:HSTM).
How are hedge funds trading HealthStream, Inc. (NASDAQ:HSTM)?
At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in HSTM 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.
More specifically, Renaissance Technologies was the largest shareholder of HealthStream, Inc. (NASDAQ:HSTM), with a stake worth $12.7 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $6.1 million. AQR Capital Management, D E Shaw, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that HealthStream, Inc. (NASDAQ:HSTM) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there is a sect of fund managers who were dropping their full holdings last quarter. It’s worth mentioning that Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital sold off the biggest investment of the 750 funds watched by Insider Monkey, totaling an estimated $0.4 million in stock, and Joel Greenblatt’s Gotham Asset Management was right behind this move, as the fund dumped about $0.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as HealthStream, Inc. (NASDAQ:HSTM) but similarly valued. We will take a look at Connecticut Water Service, Inc. (NASDAQ:CTWS), Baytex Energy Corp (NYSE:BTE), Benefitfocus Inc (NASDAQ:BNFT), and Homology Medicines, Inc. (NASDAQ:FIXX). This group of stocks’ market valuations are similar to HSTM’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 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $46 million in HSTM’s case. Homology Medicines, Inc. (NASDAQ:FIXX) is the most popular stock in this table. On the other hand Connecticut Water Service, Inc. (NASDAQ:CTWS) is the least popular one with only 5 bullish hedge fund positions. HealthStream, Inc. (NASDAQ:HSTM) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HSTM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HSTM were disappointed as the stock returned 0.1% during the third 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 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.