Should You Buy Benefitfocus Inc (BNFT)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Benefitfocus Inc (NASDAQ:BNFT) and determine whether hedge funds skillfully traded this stock.

Hedge fund interest in Benefitfocus Inc (NASDAQ:BNFT) shares was flat at the end of last quarter. This is usually a negative indicator. 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 GasLog Ltd (NYSE:GLOG), Cheetah Mobile Inc (NYSE:CMCM), and Oceaneering International, Inc. (NYSE:OII) to gather more data points. Our calculations also showed that BNFT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In today’s marketplace there are several formulas investors employ to assess stocks. A couple of the most innovative formulas are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the best investment managers can trounce the market by a significant margin (see the details here).

William Graves Boardman Bay Capital

William Graves of Boardman Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 12 largest cement producing countries to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the latest hedge fund action surrounding Benefitfocus Inc (NASDAQ:BNFT).

What does smart money think about Benefitfocus Inc (NASDAQ:BNFT)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in BNFT a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

More specifically, Two Sigma Advisors was the largest shareholder of Benefitfocus Inc (NASDAQ:BNFT), with a stake worth $4 million reported as of the end of September. Trailing Two Sigma Advisors was D E Shaw, which amassed a stake valued at $2.8 million. Echo Street Capital Management, Boardman Bay Capital Management, and Marshall Wace LLP 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 Boardman Bay Capital Management allocated the biggest weight to Benefitfocus Inc (NASDAQ:BNFT), around 2.02% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to BNFT.

Judging by the fact that Benefitfocus Inc (NASDAQ:BNFT) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few funds who sold off their full holdings last quarter. It’s worth mentioning that Philip Hempleman’s Ardsley Partners sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $4.9 million in stock, and Renaissance Technologies was right behind this move, as the fund sold off about $1.2 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Benefitfocus Inc (NASDAQ:BNFT) but similarly valued. We will take a look at GasLog Ltd (NYSE:GLOG), Cheetah Mobile Inc (NYSE:CMCM), Oceaneering International, Inc. (NYSE:OII), and Clarus Corporation (NASDAQ:CLAR). All of these stocks’ market caps match BNFT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLOG 13 13283 -2
CMCM 4 4160 0
OII 19 29958 -5
CLAR 11 34032 0
Average 11.75 20358 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $19 million in BNFT’s case. Oceaneering International, Inc. (NYSE:OII) is the most popular stock in this table. On the other hand Cheetah Mobile Inc (NYSE:CMCM) is the least popular one with only 4 bullish hedge fund positions. Benefitfocus Inc (NASDAQ:BNFT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on BNFT, though not to the same extent, as the stock returned 21.4% during the first two months and twenty five days of the second quarter and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.