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 NextGen Healthcare, Inc. (NASDAQ:NXGN)? The smart money sentiment can provide an answer to this question.
NextGen Healthcare, Inc. (NASDAQ:NXGN) was in 16 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 21. NXGN has seen a decrease in support from the world’s most elite money managers of late. There were 17 hedge funds in our database with NXGN holdings at the end of June. Our calculations also showed that NXGN isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to go over the key hedge fund action encompassing NextGen Healthcare, Inc. (NASDAQ:NXGN).
Do Hedge Funds Think NXGN Is A Good Stock To Buy Now?
At the end of September, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in NXGN a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in NextGen Healthcare, Inc. (NASDAQ:NXGN), which was worth $5.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $4.8 million worth of shares. Millennium Management, GLG Partners, and AQR Capital Management 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 Algert Coldiron Investors allocated the biggest weight to NextGen Healthcare, Inc. (NASDAQ:NXGN), around 0.39% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to NXGN.
Due to the fact that NextGen Healthcare, Inc. (NASDAQ:NXGN) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of funds that elected to cut their full holdings last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest investment of all the hedgies tracked by Insider Monkey, worth an estimated $1 million in stock, and Roger Ibbotson’s Zebra Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds last 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. These stocks are Tompkins Financial Corporation (NYSE:TMP), Kaiser Aluminum Corp. (NASDAQ:KALU), Krystal Biotech, Inc. (NASDAQ:KRYS), Lantheus Holdings Inc (NASDAQ:LNTH), Perdoceo Education Corporation (NASDAQ:PRDO), OneSpan Inc. (NASDAQ:OSPN), and Veritex Holdings Inc (NASDAQ:VBTX). 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|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.4 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $29 million in NXGN’s case. Perdoceo Education Corporation (NASDAQ:PRDO) is the most popular stock in this table. On the other hand Tompkins Financial Corporation (NYSE:TMP) 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. Our overall hedge fund sentiment score for NXGN is 71.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on NXGN as the stock returned 39.2% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.