“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is Sientra Inc (NASDAQ:SIEN) going to take off soon? Money managers are in a pessimistic mood. The number of bullish hedge fund bets were trimmed by 8 lately. Our calculations also showed that sien isn’t among the 30 most popular stocks among hedge funds. SIEN was in 11 hedge funds’ portfolios at the end of September. There were 19 hedge funds in our database with SIEN positions at the end of the previous quarter.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s view the fresh hedge fund action regarding Sientra Inc (NASDAQ:SIEN).
What have hedge funds been doing with Sientra Inc (NASDAQ:SIEN)?
Heading into the fourth quarter of 2018, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -42% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in SIEN at the beginning of this year. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Driehaus Capital held the most valuable stake in Sientra Inc (NASDAQ:SIEN), which was worth $27.5 million at the end of the third quarter. On the second spot was Polar Capital which amassed $23.9 million worth of shares. Moreover, Deerfield Management, Millennium Management, and Columbus Circle Investors were also bullish on Sientra Inc (NASDAQ:SIEN), allocating a large percentage of their portfolios to this stock.
Since Sientra Inc (NASDAQ:SIEN) has faced falling interest from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds who were dropping their full holdings heading into Q3. Interestingly, Efrem Kamen’s Pura Vida Investments cut the biggest position of the 700 funds watched by Insider Monkey, worth about $3.6 million in stock. J. Carlo Cannell’s fund, Cannell Capital, also cut its stock, about $2.6 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 8 funds heading into Q3.
Let’s go over hedge fund activity in other stocks similar to Sientra Inc (NASDAQ:SIEN). These stocks are Teekay Corporation (NYSE:TK), Camden National Corporation (NASDAQ:CAC), DHT Holdings Inc (NYSE:DHT), and Team, Inc. (NYSE:TISI). This group of stocks’ market values resemble SIEN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TK | 12 | 33568 | 3 |
| CAC | 6 | 60948 | 0 |
| DHT | 12 | 61049 | 2 |
| TISI | 12 | 116715 | 0 |
| Average | 10.5 | 68070 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $99 million in SIEN’s case. Teekay Corporation (NYSE:TK) is the most popular stock in this table. On the other hand Camden National Corporation (NASDAQ:CAC) is the least popular one with only 6 bullish hedge fund positions. Sientra Inc (NASDAQ:SIEN) 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. In this regard TK might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
