Hedge Funds Have Never Been This Bullish On Inspire Medical Systems, Inc. (INSP)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find write-ups about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of Inspire Medical Systems, Inc. (NYSE:INSP) based on that data.

Inspire Medical Systems, Inc. (NYSE:INSP) was in 19 hedge funds’ portfolios at the end of June. INSP shareholders have witnessed an increase in hedge fund sentiment of late. There were 18 hedge funds in our database with INSP positions at the end of the previous quarter. Our calculations also showed that INSP isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Richard Driehaus

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the key hedge fund action regarding Inspire Medical Systems, Inc. (NYSE:INSP).

What does smart money think about Inspire Medical Systems, Inc. (NYSE:INSP)?

At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in INSP over the last 16 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.

No of Hedge Funds with INSP Positions

Among these funds, OrbiMed Advisors held the most valuable stake in Inspire Medical Systems, Inc. (NYSE:INSP), which was worth $89.2 million at the end of the second quarter. On the second spot was Columbus Circle Investors which amassed $38.5 million worth of shares. Moreover, Driehaus Capital, Pura Vida Investments, and D E Shaw were also bullish on Inspire Medical Systems, Inc. (NYSE:INSP), allocating a large percentage of their portfolios to this stock.

Now, key money managers were leading the bulls’ herd. Renaissance Technologies created the largest position in Inspire Medical Systems, Inc. (NYSE:INSP). Renaissance Technologies had $4.9 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $3.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Christopher James’s Partner Fund Management, Ken Griffin’s Citadel Investment Group, and Efrem Kamen’s Pura Vida Investments.

Let’s go over hedge fund activity in other stocks similar to Inspire Medical Systems, Inc. (NYSE:INSP). These stocks are Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), SPX Corporation (NYSE:SPXC), Tri-Continental Corporation (NYSE:TY), and La-Z-Boy Incorporated (NYSE:LZB). All of these stocks’ market caps are similar to INSP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KLIC 17 229037 0
SPXC 16 82178 -3
TY 1 1220 -1
LZB 21 76870 0
Average 13.75 97326 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $288 million in INSP’s case. La-Z-Boy Incorporated (NYSE:LZB) is the most popular stock in this table. On the other hand Tri-Continental Corporation (NYSE:TY) is the least popular one with only 1 bullish hedge fund positions. Inspire Medical Systems, Inc. (NYSE:INSP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately INSP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on INSP were disappointed as the stock returned 0.6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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