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 Surgalign Holdings, Inc. (NASDAQ:SRGA) to find out whether there were any major changes in hedge funds’ views.
Is SRGA a good stock to buy now? Investors who are in the know were taking an optimistic view. The number of long hedge fund positions advanced by 2 lately. Surgalign Holdings, Inc. (NASDAQ:SRGA) was in 13 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 16. Our calculations also showed that SRGA 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.
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 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 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.
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. Now we’re going to view the latest hedge fund action encompassing Surgalign Holdings, Inc. (NASDAQ:SRGA).
Do Hedge Funds Think SRGA Is A Good Stock To Buy Now?
At the end of September, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SRGA over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Surgalign Holdings, Inc. (NASDAQ:SRGA) was held by Omega Advisors, which reported holding $3.6 million worth of stock at the end of September. It was followed by Royce & Associates with a $2.9 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Omega Advisors allocated the biggest weight to Surgalign Holdings, Inc. (NASDAQ:SRGA), around 0.35% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, earmarking 0.34 percent of its 13F equity portfolio to SRGA.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Diametric Capital, managed by Nick Thakore, established the largest position in Surgalign Holdings, Inc. (NASDAQ:SRGA). Diametric Capital had $0.5 million invested in the company at the end of the quarter. Roger Ibbotson’s Zebra Capital Management also initiated a $0 million position during the quarter. The only other fund with a new position in the stock is Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Surgalign Holdings, Inc. (NASDAQ:SRGA) but similarly valued. These stocks are Strongbridge Biopharma plc (NASDAQ:SBBP), Tanzanian Gold Corporation (NYSE:TRX), Fonar Corporation (NASDAQ:FONR), BELLUS Health Inc. (NASDAQ:BLU), Exagen Inc. (NASDAQ:XGN), Bassett Furniture Industries Inc. (NASDAQ:BSET), and BCB Bancorp, Inc. (NASDAQ:BCBP). This group of stocks’ market caps match SRGA’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 5.1 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $11 million in SRGA’s case. Strongbridge Biopharma plc (NASDAQ:SBBP) is the most popular stock in this table. On the other hand Exagen Inc. (NASDAQ:XGN) is the least popular one with only 1 bullish hedge fund positions. Surgalign Holdings, Inc. (NASDAQ:SRGA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SRGA is 81.4. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on SRGA as the stock returned 33.7% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.