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Is NextGen Healthcare, Inc. (NXGN) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing more than 730 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of June 28th, 2019. In this article we are going to take a look at smart money sentiment towards NextGen Healthcare, Inc. (NASDAQ:NXGN).

NextGen Healthcare, Inc. (NASDAQ:NXGN) has seen an increase in enthusiasm from smart money lately. NXGN was in 14 hedge funds’ portfolios at the end of June. There were 13 hedge funds in our database with NXGN positions at the end of the previous quarter. Our calculations also showed that NXGN isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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.

AQR CAPITAL MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the recent hedge fund action regarding NextGen Healthcare, Inc. (NASDAQ:NXGN).

Hedge fund activity in NextGen Healthcare, Inc. (NASDAQ:NXGN)

Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NXGN over the last 16 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

No of Hedge Funds with NXGN Positions

Of the funds tracked by Insider Monkey, Cliff Asness’s AQR Capital Management has the number one position in NextGen Healthcare, Inc. (NASDAQ:NXGN), worth close to $11.9 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $10.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions encompass Paul Marshall and Ian Wace’s Marshall Wace LLP, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw.

As industrywide interest jumped, key money managers were breaking ground themselves. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable position in NextGen Healthcare, Inc. (NASDAQ:NXGN). Laurion Capital Management had $0.2 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.2 million position during the quarter.

Let’s now review hedge fund activity in other stocks similar to NextGen Healthcare, Inc. (NASDAQ:NXGN). These stocks are Phibro Animal Health Corporation (NASDAQ:PAHC), OneSmart International Education Group Limited (NYSE:ONE), S&T Bancorp, Inc. (NASDAQ:STBA), and Monmouth Real Estate Investment Corporation (NYSE:MNR). All of these stocks’ market caps are closest to NXGN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PAHC 16 60038 -2
ONE 7 49934 1
STBA 11 19238 7
MNR 13 62448 4
Average 11.75 47915 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $46 million in NXGN’s case. Phibro Animal Health Corporation (NASDAQ:PAHC) is the most popular stock in this table. On the other hand OneSmart International Education Group Limited (NYSE:ONE) is the least popular one with only 7 bullish hedge fund positions. NextGen Healthcare, Inc. (NASDAQ:NXGN) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NXGN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NXGN were disappointed as the stock returned -21.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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