It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in iRhythm Technologies, Inc. (NASDAQ:IRTC).
iRhythm Technologies, Inc. (NASDAQ:IRTC) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2018. At the end of this article we will also compare IRTC to other stocks including Eagle Bancorp, Inc. (NASDAQ:EGBN), Tellurian Inc. (NASDAQ:TELL), and Reata Pharmaceuticals, Inc. (NASDAQ:RETA) to get a better sense of its popularity.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a glance at the key hedge fund action surrounding iRhythm Technologies, Inc. (NASDAQ:IRTC).
What have hedge funds been doing with iRhythm Technologies, Inc. (NASDAQ:IRTC)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IRTC over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the biggest position in iRhythm Technologies, Inc. (NASDAQ:IRTC), worth close to $67.9 million, comprising 0.1% of its total 13F portfolio. Coming in second is Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $36.5 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism contain Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, Christopher James’s Partner Fund Management and Steve Cohen’s Point72 Asset Management.
Since iRhythm Technologies, Inc. (NASDAQ:IRTC) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers that slashed their positions entirely by the end of the third quarter. Interestingly, Joseph Edelman’s Perceptive Advisors sold off the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $16 million in call options, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $9.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to iRhythm Technologies, Inc. (NASDAQ:IRTC). We will take a look at Eagle Bancorp, Inc. (NASDAQ:EGBN), Tellurian Inc. (NASDAQ:TELL), Reata Pharmaceuticals, Inc. (NASDAQ:RETA), and Baozun Inc (NASDAQ:BZUN). All of these stocks’ market caps resemble IRTC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EGBN | 12 | 22162 | -7 |
| TELL | 15 | 94826 | 1 |
| RETA | 17 | 158938 | 0 |
| BZUN | 14 | 43238 | -3 |
| Average | 14.5 | 79791 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $285 million in IRTC’s case. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is the most popular stock in this table. On the other hand Eagle Bancorp, Inc. (NASDAQ:EGBN) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks iRhythm Technologies, Inc. (NASDAQ:IRTC) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately IRTC wasn’t nearly as popular as these 15 stock and hedge funds that were betting on IRTC were disappointed as the stock returned -1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
