You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Encompass Health Corporation (NYSE:EHC) investors should pay attention to an increase in hedge fund sentiment recently. Our calculations also showed that EHC isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 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.
Let’s take a look at the fresh hedge fund action regarding Encompass Health Corporation (NYSE:EHC).
Hedge fund activity in Encompass Health Corporation (NYSE:EHC)
At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the second quarter of 2018. On the other hand, there were a total of 19 hedge funds with a bullish position in EHC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Encompass Health Corporation (NYSE:EHC), which was worth $133.1 million at the end of the third quarter. On the second spot was Rock Springs Capital Management which amassed $44.7 million worth of shares. Moreover, Two Sigma Advisors, D E Shaw, and Citadel Investment Group were also bullish on Encompass Health Corporation (NYSE:EHC), allocating a large percentage of their portfolios to this stock.
Consequently, some big names have jumped into Encompass Health Corporation (NYSE:EHC) headfirst. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable position in Encompass Health Corporation (NYSE:EHC). Point72 Asset Management had $13.6 million invested in the company at the end of the quarter. Vishal Saluja and Pham Quang’s Endurant Capital Management also made a $5.3 million investment in the stock during the quarter. The other funds with brand new EHC positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Matthew Hulsizer’s PEAK6 Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Encompass Health Corporation (NYSE:EHC) but similarly valued. We will take a look at Aqua America Inc (NYSE:WTR), WGP Group (NYSE:WGP), IPG Photonics Corporation (NASDAQ:IPGP), and WEX Inc (NYSE:WEX). All of these stocks’ market caps are similar to EHC’s market cap.
|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 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $178 million. That figure was $418 million in EHC’s case. WEX Inc (NYSE:WEX) is the most popular stock in this table. On the other hand WGP Group (NYSE:WGP) is the least popular one with only 7 bullish hedge fund positions. Encompass Health Corporation (NYSE:EHC) 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 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately EHC wasn’t in this group. Hedge funds that bet on EHC were disappointed as the stock lost 1.8% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.