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Hedge Funds Aren’t Crazy About Evolent Health Inc (EVH) Anymore

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 thoughtEvolent Health Inc (NYSE:EVH) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Evolent Health Inc (NYSE:EVH) was in 13 hedge funds’ portfolios at the end of March. EVH has seen a decrease in enthusiasm from smart money in recent months. There were 16 hedge funds in our database with EVH holdings at the end of the previous quarter. Our calculations also showed that EVH 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

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. With all of this in mind we’re going to take a look at the fresh hedge fund action encompassing Evolent Health Inc (NYSE:EVH).

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

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EVH over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Endurant Capital Management held the most valuable stake in Evolent Health Inc (NYSE:EVH), which was worth $9.3 million at the end of the third quarter. On the second spot was Sectoral Asset Management which amassed $7.3 million worth of shares. Millennium Management, Royce & Associates, and Two Sigma Advisors 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 4.2% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, setting aside 1.4 percent of its 13F equity portfolio to EVH.

Due to the fact that Evolent Health Inc (NYSE:EVH) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there is a sect of money managers that elected to cut their entire stakes by the end of the first quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management sold off the biggest position of all the hedgies monitored by Insider Monkey, valued at about $10.9 million in stock, and Vishal Saluja and Pham Quang’s Endurant Capital Management was right behind this move, as the fund dropped about $5.4 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Evolent Health Inc (NYSE:EVH) but similarly valued. We will take a look at Core Laboratories N.V. (NYSE:CLB), Oaktree Specialty Lending Corporation (NASDAQ:OCSL), Grid Dynamics Holdings, Inc. (NASDAQ:GDYN), and Stoneridge, Inc. (NYSE:SRI). This group of stocks’ market values are similar to EVH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLB 16 33560 -9
OCSL 13 41797 -5
GDYN 12 64056 -3
SRI 13 32212 0
Average 13.5 42906 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $33 million in EVH’s case. Core Laboratories N.V. (NYSE:CLB) is the most popular stock in this table. On the other hand Grid Dynamics Holdings, Inc. (NASDAQ:GDYN) is the least popular one with only 12 bullish hedge fund positions. Evolent Health Inc (NYSE:EVH) 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 but beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on EVH, though not to the same extent, as the stock returned 23.6% during the second quarter and outperformed the market.

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