It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards NextGen Healthcare, Inc. (NASDAQ:NXGN) during the quarter below.
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 view the fresh hedge fund action encompassing NextGen Healthcare, Inc. (NASDAQ:NXGN).
What have hedge funds been doing with NextGen Healthcare, Inc. (NASDAQ:NXGN)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NXGN over the last 14 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in NextGen Healthcare, Inc. (NASDAQ:NXGN) was held by AQR Capital Management, which reported holding $10.1 million worth of stock at the end of December. It was followed by Point72 Asset Management with a $6.8 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and Citadel Investment Group.
Now, specific money managers have been driving this bullishness. AQR Capital Management, managed by Cliff Asness, assembled the biggest position in NextGen Healthcare, Inc. (NASDAQ:NXGN). AQR Capital Management had $10.1 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $6.8 million position during the quarter. The other funds with brand new NXGN positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Israel Englander’s Millennium Management, and Roger Ibbotson’s Zebra Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to NextGen Healthcare, Inc. (NASDAQ:NXGN). We will take a look at Primoris Services Corp (NASDAQ:PRIM), Piper Jaffray Companies (NYSE:PJC), SeaDrill Limited (NYSE:SDRL), and ePlus Inc. (NASDAQ:PLUS). This group of stocks’ market values are closest to NXGN’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $35 million in NXGN’s case. SeaDrill Limited (NYSE:SDRL) is the most popular stock in this table. On the other hand Piper Jaffray Companies (NYSE:PJC) is the least popular one with only 5 bullish hedge fund positions. NextGen Healthcare, Inc. (NASDAQ:NXGN) 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 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 NXGN wasn’t nearly as popular as these 15 stock and hedge funds that were betting on NXGN were disappointed as the stock returned 11.6% 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.