Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Herbalife Ltd. (NYSE:HLF)? The smart money sentiment can provide an answer to this question.
Herbalife Ltd. (NYSE:HLF) shareholders have witnessed an increase in hedge fund sentiment lately. HLF was in 44 hedge funds’ portfolios at the end of September. There were 35 hedge funds in our database with HLF holdings at the end of the previous quarter. At the end of this article we will also compare HLF to other stocks including Empresa Nacional de Electricidad S.A. (NYSE:EOCC), CBOE Holdings, Inc (NASDAQ:CBOE), and Fortinet Inc (NASDAQ:FTNT) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
How have hedgies been trading Herbalife Ltd. (NYSE:HLF)?
At Q3’s end, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a jump of 26% from the second quarter of 2016. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Carl Icahn’s Icahn Capital LP has the most valuable position in Herbalife Ltd. (NYSE:HLF), worth close to $1.22 billion, amounting to 6.1% of its total 13F portfolio. On Icahn Capital LP’s heels is Vinit Bodas of Deccan Value Advisors, with a $242.2 million position; 22.5% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish consist of William Duhamel’s Route One Investment Company, and Renaissance Technologies, one of the largest hedge funds in the world. We should note that Indus Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now, key money managers have jumped into Herbalife Ltd. (NYSE:HLF) headfirst during the latest quarter. Farallon Capital, managed by Thomas Steyer, assembled the largest position in Herbalife Ltd. (NYSE:HLF). The fund reportedly had $130.1 million invested in the company at the end of the quarter. Jonathon Jacobson’s Highfields Capital Management also initiated a $62 million position during the quarter. The following funds were also among the new HLF investors: Ken Heebner’s Capital Growth Management, Ken Griffin’s Citadel Investment Group, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Herbalife Ltd. (NYSE:HLF) but similarly valued. We will take a look at Empresa Nacional de Electricidad S.A. (NYSE:EOCC), CBOE Holdings, Inc (NASDAQ:CBOE), Fortinet Inc (NASDAQ:FTNT), and athenahealth, Inc (NASDAQ:ATHN). This group of stocks’ market caps are similar to HLF’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $305 million. That figure was a whooping $3.09 billion in HLF’s case. Fortinet Inc (NASDAQ:FTNT) is the most popular stock in this table. On the other hand Empresa Nacional de Electricidad S.A. (NYSE:EOCC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Herbalife Ltd. (NYSE:HLF) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.