Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Orthofix Medical Inc. (NASDAQ:OFIX) to find out whether it was one of their high conviction long-term ideas.
Is Orthofix Medical Inc. (NASDAQ:OFIX) a safe investment now? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund bets were cut by 6 lately. Our calculations also showed that OFIX isn’t among the 30 most popular stocks among hedge funds (see the video below). OFIX was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. There were 19 hedge funds in our database with OFIX positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
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 Orthofix Medical Inc. (NASDAQ:OFIX).
What does smart money think about Orthofix Medical Inc. (NASDAQ:OFIX)?
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OFIX over the last 16 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Orthofix Medical Inc. (NASDAQ:OFIX), worth close to $30.2 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by GLG Partners, managed by Noam Gottesman, which holds a $14.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions consist of Paul Marshall and Ian Wace’s Marshall Wace LLP, Efrem Kamen’s Pura Vida Investments and Mario Gabelli’s GAMCO Investors.
Since Orthofix Medical Inc. (NASDAQ:OFIX) has witnessed declining sentiment from hedge fund managers, logic holds that there was a specific group of hedge funds that elected to cut their entire stakes by the end of the second quarter. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management said goodbye to the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling close to $1.3 million in stock. Andrew Feldstein and Stephen Siderow’s fund, Blue Mountain Capital, also dropped its stock, about $0.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 6 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Orthofix Medical Inc. (NASDAQ:OFIX) but similarly valued. We will take a look at Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), Standard Motor Products, Inc. (NYSE:SMP), Columbus McKinnon Corporation (NASDAQ:CMCO), and Eldorado Gold Corp (NYSE:EGO). All of these stocks’ market caps are similar to OFIX’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 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $83 million in OFIX’s case. Columbus McKinnon Corporation (NASDAQ:CMCO) is the most popular stock in this table. On the other hand Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) is the least popular one with only 9 bullish hedge fund positions. Orthofix Medical Inc. (NASDAQ:OFIX) 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 OFIX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OFIX were disappointed as the stock returned 0.3% 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.