Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Coherent, Inc. (NASDAQ:COHR) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. COHR was in 14 hedge funds' portfolios at the end of the first quarter of 2019. There were 17 hedge funds in our database with COHR positions at the end of the previous quarter. Our calculations also showed that COHR isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Phill Gross, Adage Capital Management
Let's view the fresh hedge fund action regarding Coherent, Inc. (NASDAQ:COHR).
How are hedge funds trading Coherent, Inc. (NASDAQ:COHR)?
At Q1's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COHR over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
COHR_jun2019
More specifically, Royce & Associates was the largest shareholder of Coherent, Inc. (NASDAQ:COHR), with a stake worth $85.2 million reported as of the end of March. Trailing Royce & Associates was Point72 Asset Management, which amassed a stake valued at $37.9 million. Skylands Capital, ACK Asset Management, and BeaconLight Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Coherent, Inc. (NASDAQ:COHR) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of funds that decided to sell off their positions entirely last quarter. At the top of the heap, D. E. Shaw's D E Shaw sold off the largest investment of the 700 funds monitored by Insider Monkey, worth an estimated $2.7 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $2.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Coherent, Inc. (NASDAQ:COHR). We will take a look at F.N.B. Corp (NYSE:FNB), Ellington Financial Inc. (NYSE:ELLI), Thor Industries, Inc. (NYSE:THO), and Physicians Realty Trust (NYSE:DOC). This group of stocks' market caps match COHR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FNB,23,87087,3 ELLI,20,744697,2 THO,20,98141,-2 DOC,11,105688,-1 Average,18.5,258903,0.5 [/table]
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $201 million in COHR's case. F.N.B. Corp (NYSE:FNB) is the most popular stock in this table. On the other hand Physicians Realty Trust (NYSE:DOC) is the least popular one with only 11 bullish hedge fund positions. Coherent, Inc. (NASDAQ:COHR) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately COHR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); COHR investors were disappointed as the stock returned -11.5% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
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