It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Orthofix International NV (NASDAQ:OFIX).
Orthofix International NV (NASDAQ:OFIX) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of September. At the end of this article we will also compare OFIX to other stocks including Tenneco Inc (NYSE:TEN), Brigham Minerals, Inc. (NYSE:MNRL), and PGT Innovations Inc. (NASDAQ:PGTI) to get a better sense of its popularity.
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Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action encompassing Orthofix International NV (NASDAQ:OFIX).
How have hedgies been trading Orthofix International NV (NASDAQ:OFIX)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in OFIX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the largest position in Orthofix International NV (NASDAQ:OFIX), worth close to $22.1 million, corresponding to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is GLG Partners, managed by Noam Gottesman, which holds a $12.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions comprise Paul Marshall and Ian Wace’s Marshall Wace, Israel Englander’s Millennium Management and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position Factorial Partners allocated the biggest weight to Orthofix International NV (NASDAQ:OFIX), around 0.54% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.34 percent of its 13F equity portfolio to OFIX.
Judging by the fact that Orthofix International NV (NASDAQ:OFIX) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of funds who were dropping their positions entirely by the end of the third quarter. It’s worth mentioning that Efrem Kamen’s Pura Vida Investments dumped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $5 million in call options. Ken Griffin’s fund, Citadel Investment Group, also dumped its call options, about $0.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Orthofix International NV (NASDAQ:OFIX). We will take a look at Tenneco Inc (NYSE:TEN), Brigham Minerals, Inc. (NYSE:MNRL), PGT Innovations Inc. (NASDAQ:PGTI), and Orion Engineered Carbons SA (NYSE:OEC). This group of stocks’ market caps are closest to OFIX’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $69 million in OFIX’s case. Orion Engineered Carbons SA (NYSE:OEC) is the most popular stock in this table. On the other hand Tenneco Inc (NYSE:TEN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Orthofix International NV (NASDAQ:OFIX) is even less popular than TEN. Hedge funds dodged a bullet by taking a bearish stance towards OFIX. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OFIX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); OFIX investors were disappointed as the stock returned -14.4% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.