At Insider Monkey we follow nearly 750 of the best-performing investors and even though many of them lost money in the last couple of months of 2018 (some actually delivered very strong returns), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.
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’ 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 look at the key hedge fund action regarding HealthStream, Inc. (NASDAQ:HSTM).
How have hedgies been trading HealthStream, Inc. (NASDAQ:HSTM)?
Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the second quarter of 2018. On the other hand, there were a total of 13 hedge funds with a bullish position in HSTM a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in HealthStream, Inc. (NASDAQ:HSTM) was held by Renaissance Technologies, which reported holding $8.1 million worth of stock at the end of December. It was followed by D E Shaw with a $7.8 million position. Other investors bullish on the company included AQR Capital Management, Arrowstreet Capital, and Marshall Wace LLP.
As aggregate interest increased, key money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in HealthStream, Inc. (NASDAQ:HSTM). Marshall Wace LLP had $4.8 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $0.4 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now take a look at hedge fund activity in other stocks similar to HealthStream, Inc. (NASDAQ:HSTM). These stocks are Cass Information Systems (NASDAQ:CASS), Triumph Bancorp Inc (NASDAQ:TBK), Fossil Group Inc (NASDAQ:FOSL), and Westlake Chemical Partners LP (NYSE:WLKP). This group of stocks’ market values are similar to HSTM’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 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $49 million in HSTM’s case. Fossil Group Inc (NASDAQ:FOSL) is the most popular stock in this table. On the other hand Westlake Chemical Partners LP (NYSE:WLKP) is the least popular one with only 1 bullish hedge fund positions. HealthStream, Inc. (NASDAQ:HSTM) 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 HSTM wasn’t nearly as popular as these 15 stock and hedge funds that were betting on HSTM were disappointed as the stock returned 12.6% 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.