We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards NextGen Healthcare, Inc. (NASDAQ:NXGN).
Is NextGen Healthcare, Inc. (NASDAQ:NXGN) the right investment to pursue these days? Prominent investors are turning less bullish. The number of long hedge fund bets were cut by 2 recently. Our calculations also showed that NXGN isn’t among the 30 most popular stocks among hedge funds.
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.
Let’s take a look at the key hedge fund action surrounding NextGen Healthcare, Inc. (NASDAQ:NXGN).
What have hedge funds been doing with NextGen Healthcare, Inc. (NASDAQ:NXGN)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in NXGN a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in NextGen Healthcare, Inc. (NASDAQ:NXGN), worth close to $10.6 million, accounting for less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $8.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions comprise D. E. Shaw’s D E Shaw, Paul Marshall and Ian Wace’s Marshall Wace LLP and Israel Englander’s Millennium Management.
Judging by the fact that NextGen Healthcare, Inc. (NASDAQ:NXGN) has experienced declining sentiment from hedge fund managers, we can see that there was a specific group of hedge funds that decided to sell off their full holdings in the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management said goodbye to the largest position of all the hedgies monitored by Insider Monkey, valued at about $6.8 million in stock. Jim Simons’s fund, Renaissance Technologies, also cut its stock, about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NextGen Healthcare, Inc. (NASDAQ:NXGN) but similarly valued. We will take a look at Constellium NV (NYSE:CSTM), Neenah, Inc. (NYSE:NP), Patrick Industries, Inc. (NASDAQ:PATK), and Cryolife Inc (NYSE:CRY). This group of stocks’ market caps are similar to NXGN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CSTM | 41 | 264118 | 9 |
| NP | 7 | 12403 | 3 |
| PATK | 17 | 91534 | -7 |
| CRY | 13 | 25250 | 2 |
| Average | 19.5 | 98326 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $98 million. That figure was $31 million in NXGN’s case. Constellium NV (NYSE:CSTM) is the most popular stock in this table. On the other hand Neenah, Inc. (NYSE:NP) is the least popular one with only 7 bullish hedge fund positions. NextGen Healthcare, Inc. (NASDAQ:NXGN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on NXGN as the stock returned 12.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
