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Were Hedge Funds Right About Model N Inc (MODN)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Model N Inc (NYSE:MODN).

Model N Inc (NYSE:MODN) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds’ portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare MODN to other stocks including Central European Media Enterprises Ltd. (NASDAQ:CETV), Sapiens International Corporation N.V. (NASDAQ:SPNS), and Futu Holdings Limited (NASDAQ:FUTU) to get a better sense of its popularity.

NAVELLIER & ASSOCIATES

Louis Navellier of Navellier & Associates

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the fresh hedge fund action encompassing Model N Inc (NYSE:MODN).

Hedge fund activity in Model N Inc (NYSE:MODN)

At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MODN over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Model N Inc (NYSE:MODN), which was worth $74 million at the end of the third quarter. On the second spot was Trigran Investments which amassed $23.2 million worth of shares. Millennium Management, Portolan Capital Management, 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 Trigran Investments allocated the biggest weight to Model N Inc (NYSE:MODN), around 4.18% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, setting aside 1.41 percent of its 13F equity portfolio to MODN.

Judging by the fact that Model N Inc (NYSE:MODN) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there were a few fund managers that decided to sell off their full holdings last quarter. It’s worth mentioning that Brian C. Freckmann’s Lyon Street Capital cut the biggest stake of all the hedgies followed by Insider Monkey, valued at close to $0.7 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dropped its stock, about $0.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

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. We will take a look at Central European Media Enterprises Ltd. (NASDAQ:CETV), Sapiens International Corporation N.V. (NASDAQ:SPNS), Futu Holdings Limited (NASDAQ:FUTU), and B&G Foods, Inc. (NYSE:BGS). This group of stocks’ market caps resemble MODN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CETV 10 41327 0
SPNS 10 41193 2
FUTU 3 1257 2
BGS 15 73995 -2
Average 9.5 39443 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $174 million in MODN’s case. B&G Foods, Inc. (NYSE:BGS) is the most popular stock in this table. On the other hand Futu Holdings Limited (NASDAQ:FUTU) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Model N Inc (NYSE:MODN) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately MODN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MODN were disappointed as the stock returned -20% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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