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Inovalon Holdings Inc (INOV): Hedge Funds Taking Some Chips Off The Table

In this article you are going to find out whether hedge funds think Inovalon Holdings Inc (NASDAQ:INOV) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Inovalon Holdings Inc (NASDAQ:INOV) investors should be aware of a decrease in hedge fund interest in recent months. Our calculations also showed that INOV isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

To most investors, hedge funds are seen as unimportant, old financial vehicles of years past. While there are over 8000 funds with their doors open at the moment, Our researchers look at the masters of this group, around 850 funds. Most estimates calculate that this group of people preside over bulk of the hedge fund industry’s total capital, and by keeping an eye on their unrivaled picks, Insider Monkey has figured out a few investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ken Griffin

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the new hedge fund action surrounding Inovalon Holdings Inc (NASDAQ:INOV).

Hedge fund activity in Inovalon Holdings Inc (NASDAQ:INOV)

Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards INOV over the last 18 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.

Is INOV A Good Stock To Buy?

Among these funds, Pura Vida Investments held the most valuable stake in Inovalon Holdings Inc (NASDAQ:INOV), which was worth $18.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $17.8 million worth of shares. Marshall Wace LLP, Iron Triangle Partners, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pura Vida Investments allocated the biggest weight to Inovalon Holdings Inc (NASDAQ:INOV), around 4.69% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, dishing out 2.94 percent of its 13F equity portfolio to INOV.

Judging by the fact that Inovalon Holdings Inc (NASDAQ:INOV) has experienced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of hedge funds that decided to sell off their full holdings last quarter. At the top of the heap, Brandon Haley’s Holocene Advisors dropped the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $1 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dumped about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Inovalon Holdings Inc (NASDAQ:INOV). These stocks are Radian Group Inc (NYSE:RDN), bluebird bio Inc (NASDAQ:BLUE), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), and Regal Beloit Corporation (NYSE:RBC). All of these stocks’ market caps are similar to INOV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RDN 28 121169 -1
BLUE 27 286752 -6
RARE 18 236444 0
RBC 19 204663 -5
Average 23 212257 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $72 million in INOV’s case. Radian Group Inc (NYSE:RDN) is the most popular stock in this table. On the other hand Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Inovalon Holdings Inc (NASDAQ:INOV) is even less popular than RARE. Hedge funds dodged a bullet by taking a bearish stance towards INOV. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately INOV wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); INOV investors were disappointed as the stock returned 17.5% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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