Where Do Hedge Funds Stand On STAAR Surgical Company (STAA)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards STAAR Surgical Company (NASDAQ:STAA).

STAAR Surgical Company (NASDAQ:STAA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 26 hedge funds’ portfolios at the end of September. Our calculations also showed that STAA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). 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 INMODE LTD. (NASDAQ:INMD), Fox Factory Holding Corp (NASDAQ:FOXF), and Inovalon Holdings Inc (NASDAQ:INOV) to gather more data points.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the key hedge fund action encompassing STAAR Surgical Company (NASDAQ:STAA).

Michael Gelband of ExodusPoint Capital

Do Hedge Funds Think STAA Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in STAA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Broadwood Capital, managed by Neal C. Bradsher, holds the largest position in STAAR Surgical Company (NASDAQ:STAA). Broadwood Capital has a $1.1135 billion position in the stock, comprising 56.8% of its 13F portfolio. The second largest stake is held by Palo Alto Investors, led by Joon Yun and Patrick Lee, holding a $146.6 million position; 8.8% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions include Efrem Kamen’s Pura Vida Investments, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Broadwood Capital allocated the biggest weight to STAAR Surgical Company (NASDAQ:STAA), around 56.77% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, designating 8.85 percent of its 13F equity portfolio to STAA.

Since STAAR Surgical Company (NASDAQ:STAA) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies that elected to cut their entire stakes heading into Q4. Intriguingly, Tony Chin’s Infini Capital cut the biggest position of the 750 funds tracked by Insider Monkey, comprising about $0.6 million in stock. Qing Li’s fund, Sciencast Management, also sold off its stock, about $0.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as STAAR Surgical Company (NASDAQ:STAA) but similarly valued. We will take a look at INMODE LTD. (NASDAQ:INMD), Fox Factory Holding Corp (NASDAQ:FOXF), Inovalon Holdings Inc (NASDAQ:INOV), Joby Aviation Inc. (NYSE:JOBY), Lumentum Holdings Inc (NASDAQ:LITE), Primerica, Inc. (NYSE:PRI), and Allegro MicroSystems, Inc. (NASDAQ:ALGM). All of these stocks’ market caps match STAA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INMD 29 524139 3
FOXF 18 78501 4
INOV 27 382693 7
JOBY 21 231850 21
LITE 33 408768 4
PRI 14 468979 -6
ALGM 14 98566 -3
Average 22.3 313357 4.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $313 million. That figure was $1400 million in STAA’s case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand Primerica, Inc. (NYSE:PRI) is the least popular one with only 14 bullish hedge fund positions. STAAR Surgical Company (NASDAQ:STAA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STAA is 66.6. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately STAA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on STAA were disappointed as the stock returned -28.6% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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