Hedge Funds Are Dumping Model N Inc (MODN)

In this article we will take a look at whether hedge funds think Model N Inc (NYSE:MODN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Model N Inc (NYSE:MODN) was in 16 hedge funds’ portfolios at the end of March. MODN shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 19 hedge funds in our database with MODN positions at the end of the previous quarter. Our calculations also showed that MODN 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).

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

To most market participants, hedge funds are seen as slow, old investment vehicles of the past. While there are more than 8000 funds in operation today, Our experts choose to focus on the top tier of this group, approximately 850 funds. It is estimated that this group of investors preside over bulk of the smart money’s total capital, and by following their inimitable stock picks, Insider Monkey has determined many investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Kamran Moghtaderi of Eversept Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind let’s check out the latest hedge fund action surrounding Model N Inc (NYSE:MODN).

How are hedge funds trading Model N Inc (NYSE:MODN)?

At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MODN over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Model N Inc (NYSE:MODN), with a stake worth $53.3 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $8.4 million. Eversept Partners, Portolan Capital Management, and G2 Investment Partners 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 Eversept Partners allocated the biggest weight to Model N Inc (NYSE:MODN), around 2.1% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, dishing out 1.73 percent of its 13F equity portfolio to MODN.

Because Model N Inc (NYSE:MODN) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few hedge funds that slashed their positions entirely in the first quarter. Interestingly, Peter Muller’s PDT Partners dumped the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling about $0.6 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also cut its stock, about $0.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Model N Inc (NYSE:MODN) but similarly valued. These stocks are Sangamo Therapeutics, Inc. (NASDAQ:SGMO), Cincinnati Bell Inc. (NYSE:CBB), Stoke Therapeutics, Inc. (NASDAQ:STOK), and AZZ Incorporated (NYSE:AZZ). This group of stocks’ market values are similar to MODN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SGMO 21 94314 3
CBB 16 64660 1
STOK 10 141230 0
AZZ 17 30591 1
Average 16 82699 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $101 million in MODN’s case. Sangamo Therapeutics, Inc. (NASDAQ:SGMO) is the most popular stock in this table. On the other hand Stoke Therapeutics, Inc. (NASDAQ:STOK) is the least popular one with only 10 bullish hedge fund positions. Model N Inc (NYSE:MODN) 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on MODN as the stock returned 54.2% 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.