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. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards SeaSpine Holdings Corp (NASDAQ:SPNE) to find out whether there were any major changes in hedge funds’ views.
SeaSpine Holdings Corp (NASDAQ:SPNE) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of September. Our calculations also showed that SPNE 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Haverty Furniture Companies, Inc. (NYSE:HVT), Bank of Marin Bancorp (NASDAQ:BMRC), and HCI Group Inc (NYSE:HCI) to gather more data points.
Video: 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 S&P 500 ETFs by more than 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 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 stocks that are in our short portfolio.
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. Keeping this in mind we’re going to go over the latest hedge fund action encompassing SeaSpine Holdings Corp (NASDAQ:SPNE).
Do Hedge Funds Think SPNE Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in SPNE a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Driehaus Capital held the most valuable stake in SeaSpine Holdings Corp (NASDAQ:SPNE), which was worth $18.9 million at the end of the third quarter. On the second spot was Hawk Ridge Management which amassed $10 million worth of shares. Renaissance Technologies, Parkman Healthcare Partners, and SG 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 Parkman Healthcare Partners allocated the biggest weight to SeaSpine Holdings Corp (NASDAQ:SPNE), around 1.4% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, designating 0.85 percent of its 13F equity portfolio to SPNE.
Due to the fact that SeaSpine Holdings Corp (NASDAQ:SPNE) has witnessed falling interest from hedge fund managers, logic holds that there exists a select few fund managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group cut the biggest stake of the 750 funds watched by Insider Monkey, worth close to $1.3 million in stock, and Roger Ibbotson’s Zebra Capital Management was right behind this move, as the fund cut about $0.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to SeaSpine Holdings Corp (NASDAQ:SPNE). These stocks are Haverty Furniture Companies, Inc. (NYSE:HVT), Bank of Marin Bancorp (NASDAQ:BMRC), HCI Group Inc (NYSE:HCI), Kaleido BioSciences, Inc. (NASDAQ:KLDO), Newtek Business Services Corp (NASDAQ:NEWT), Hingham Institution for Savings (NASDAQ:HIFS), and Grid Dynamics Holdings, Inc. (NASDAQ:GDYN). This group of stocks’ market caps resemble SPNE’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 7.3 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $51 million in SPNE’s case. Haverty Furniture Companies, Inc. (NYSE:HVT) is the most popular stock in this table. On the other hand Hingham Institution for Savings (NASDAQ:HIFS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks SeaSpine Holdings Corp (NASDAQ:SPNE) is more popular among hedge funds. Our overall hedge fund sentiment score for SPNE is 80.3. 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 returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on SPNE as the stock returned 11% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.