Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Evolent Health Inc (NYSE:EVH) the right investment to pursue these days? The smart money is becoming more confident. The number of long hedge fund investments inched up by 7 lately. At the end of this article we will also compare EVH to other stocks including Kaman Corporation (NYSE:KAMN), Central Garden & Pet Co (NASDAQ:CENT), and MSG Networks Inc (NYSE:MSGN) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
How are hedge funds trading Evolent Health Inc (NYSE:EVH)?
Heading into the fourth quarter of 2016, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a 100% surge from the second quarter of 2016. By comparison, 9 hedge funds held shares or bullish call options in EVH heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pennant Capital Management, led by Alan Fournier, holds the largest position in Evolent Health Inc (NYSE:EVH). Pennant Capital Management has a $51.7 million position in the stock, comprising 1.8% of its 13F portfolio. Coming in second is Anand Parekh of Alyeska Investment Group, with a $12.4 million position. Some other peers that are bullish contain Joseph Edelman’s Perceptive Advisors, Eli Casdin’s Casdin Capital, and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Consequently, key money managers have jumped into Evolent Health Inc (NYSE:EVH) headfirst. Alyeska Investment Group, led by Anand Parekh, assembled the most outsized position in Evolent Health Inc (NYSE:EVH). Alyeska Investment Group had $12.4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $6.3 million investment in the stock during the quarter. The following funds were also among the new EVH investors: Jim Simons’ Renaissance Technologies, Benjamin A. Smith’s Laurion Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s also examine hedge fund activity in other stocks similar to Evolent Health Inc (NYSE:EVH). These stocks are Kaman Corporation (NYSE:KAMN), Central Garden & Pet Co (NASDAQ:CENT), MSG Networks Inc (NYSE:MSGN), and Express, Inc. (NYSE:EXPR). This group of stocks’ market values match EVH’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $109 million in EVH’s case. Express, Inc. (NYSE:EXPR) is the most popular stock in this table. On the other hand Kaman Corporation (NYSE:KAMN) is the least popular one with only 10 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard EXPR might be a better candidate to consider taking a long position in.