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Were Hedge Funds Right About iRhythm Technologies, Inc. (IRTC)?

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 iRhythm Technologies, Inc. (NASDAQ:IRTC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is iRhythm Technologies, Inc. (NASDAQ:IRTC) the right pick for your portfolio? The smart money is in a bullish mood. The number of long hedge fund bets inched up by 3 recently. Our calculations also showed that IRTC 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).

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 was able to identify in advance a select group of hedge fund holdings that 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.

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital 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 (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Keeping this in mind we’re going to view the key hedge fund action regarding iRhythm Technologies, Inc. (NASDAQ:IRTC).

What does smart money think about iRhythm Technologies, Inc. (NASDAQ:IRTC)?

At Q4’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IRTC over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Holocene Advisors was the largest shareholder of iRhythm Technologies, Inc. (NASDAQ:IRTC), with a stake worth $51.2 million reported as of the end of September. Trailing Holocene Advisors was Rock Springs Capital Management, which amassed a stake valued at $42.5 million. Millennium Management, Partner Fund Management, and Renaissance Technologies 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 Endurant Capital Management allocated the biggest weight to iRhythm Technologies, Inc. (NASDAQ:IRTC), around 1.92% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, setting aside 1.49 percent of its 13F equity portfolio to IRTC.

As industrywide interest jumped, some big names have jumped into iRhythm Technologies, Inc. (NASDAQ:IRTC) headfirst. Renaissance Technologies, created the largest position in iRhythm Technologies, Inc. (NASDAQ:IRTC). Renaissance Technologies had $12.1 million invested in the company at the end of the quarter. Vishal Saluja and Pham Quang’s Endurant Capital Management also made a $6.1 million investment in the stock during the quarter. The other funds with brand new IRTC positions are Dmitry Balyasny’s Balyasny Asset Management, Bhagwan Jay Rao’s Integral Health Asset Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as iRhythm Technologies, Inc. (NASDAQ:IRTC) but similarly valued. These stocks are Horace Mann Educators Corporation (NYSE:HMN), Healthcare Services Group, Inc. (NASDAQ:HCSG), NetScout Systems, Inc. (NASDAQ:NTCT), and Principia Biopharma Inc. (NASDAQ:PRNB). This group of stocks’ market valuations match IRTC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HMN 11 29285 -3
HCSG 18 101640 2
NTCT 20 110982 6
PRNB 20 555851 8
Average 17.25 199440 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $222 million in IRTC’s case. NetScout Systems, Inc. (NASDAQ:NTCT) is the most popular stock in this table. On the other hand Horace Mann Educators Corporation (NYSE:HMN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks iRhythm Technologies, Inc. (NASDAQ:IRTC) is more popular among hedge funds. 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 still managed to beat the market by 4.2 percentage points. Hedge funds were also right about betting on IRTC as the stock returned 12.7% so far in 2020 (through April 6th) 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.
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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