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Were Hedge Funds Right About Souring On CorVel Corporation (CRVL)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like CorVel Corporation (NASDAQ:CRVL).

CorVel Corporation (NASDAQ:CRVL) was in 15 hedge funds’ portfolios at the end of June. CRVL has experienced a decrease in hedge fund sentiment of late. There were 16 hedge funds in our database with CRVL positions at the end of the previous quarter. Our calculations also showed that CRVL isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

CRVL_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the new hedge fund action regarding CorVel Corporation (NASDAQ:CRVL).

How are hedge funds trading CorVel Corporation (NASDAQ:CRVL)?

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CRVL over the last 16 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

AQR CAPITAL MANAGEMENT

Among these funds, Renaissance Technologies held the most valuable stake in CorVel Corporation (NASDAQ:CRVL), which was worth $118 million at the end of the second quarter. On the second spot was Ancora Advisors which amassed $13 million worth of shares. Moreover, Arrowstreet Capital, AQR Capital Management, and Millennium Management were also bullish on CorVel Corporation (NASDAQ:CRVL), allocating a large percentage of their portfolios to this stock.

Since CorVel Corporation (NASDAQ:CRVL) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few fund managers who sold off their positions entirely last quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest position of all the hedgies monitored by Insider Monkey, comprising close to $0.4 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CorVel Corporation (NASDAQ:CRVL) but similarly valued. We will take a look at NOW Inc (NYSE:DNOW), First Majestic Silver Corp (NYSE:AG), Provident Financial Services, Inc. (NYSE:PFS), and U.S. Physical Therapy, Inc. (NYSE:USPH). This group of stocks’ market values are similar to CRVL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DNOW 11 87977 -3
AG 9 22805 1
PFS 11 56686 5
USPH 11 68548 -2
Average 10.5 59004 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $174 million in CRVL’s case. NOW Inc (NYSE:DNOW) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks CorVel Corporation (NASDAQ:CRVL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CRVL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CRVL were disappointed as the stock returned -13% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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

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