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Were Hedge Funds Right About Cardiovascular Systems Inc (CSII)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Cardiovascular Systems Inc (NASDAQ:CSII) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Cardiovascular Systems Inc (NASDAQ:CSII) investors should be aware of a decrease in enthusiasm from smart money of late. Our calculations also showed that CSII isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the latest hedge fund action encompassing Cardiovascular Systems Inc (NASDAQ:CSII).

What does smart money think about Cardiovascular Systems Inc (NASDAQ:CSII)?

Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in CSII over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Cardiovascular Systems Inc (NASDAQ:CSII), with a stake worth $81.7 million reported as of the end of September. Trailing Renaissance Technologies was Partner Fund Management, which amassed a stake valued at $13.3 million. Sectoral Asset Management, GAMCO Investors, and Millennium 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 Sectoral Asset Management allocated the biggest weight to Cardiovascular Systems Inc (NASDAQ:CSII), around 1.49% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, setting aside 0.77 percent of its 13F equity portfolio to CSII.

Judging by the fact that Cardiovascular Systems Inc (NASDAQ:CSII) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there is a sect of hedgies that slashed their full holdings heading into Q4. Intriguingly, Mika Toikka’s AlphaCrest Capital Management sold off the largest investment of all the hedgies monitored by Insider Monkey, worth an estimated $0.7 million in stock. David Harding’s fund, Winton Capital Management, also sold off its stock, about $0.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cardiovascular Systems Inc (NASDAQ:CSII) but similarly valued. We will take a look at Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), Eventbrite, Inc. (NYSE:EB), InterDigital, Inc. (NASDAQ:IDCC), and USANA Health Sciences, Inc. (NYSE:USNA). All of these stocks’ market caps are similar to CSII’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KLIC 22 340478 2
EB 24 321993 1
IDCC 27 300116 0
USNA 12 196149 -2
Average 21.25 289684 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $135 million in CSII’s case. InterDigital, Inc. (NASDAQ:IDCC) is the most popular stock in this table. On the other hand USANA Health Sciences, Inc. (NYSE:USNA) is the least popular one with only 12 bullish hedge fund positions. Cardiovascular Systems Inc (NASDAQ:CSII) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CSII wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CSII investors were disappointed as the stock returned -24% during the same time period 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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