Hedge Funds Aren’t Crazy About Nevro Corp (NVRO) Anymore

·6 min read

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 Nevro Corp (NYSE:NVRO).

Is Nevro Corp (NYSE:NVRO) worth your attention right now? Money managers were reducing their bets on the stock. The number of long hedge fund positions were cut by 3 lately. Nevro Corp (NYSE:NVRO) was in 26 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 35. Our calculations also showed that NVRO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 29 hedge funds in our database with NVRO holdings at the end of March.

In the eyes of most investors, hedge funds are perceived as worthless, old investment tools of the past. While there are greater than 8000 funds with their doors open at the moment, Our researchers hone in on the aristocrats of this club, about 850 funds. These investment experts oversee bulk of the smart money's total asset base, and by tracking their inimitable picks, Insider Monkey has unearthed several investment strategies that have historically outrun the broader indices. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Arthur B Cohen and Joseph Healey of Healthcor Management LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to check out the new hedge fund action encompassing Nevro Corp (NYSE:NVRO).

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

At second quarter's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the first quarter of 2020. By comparison, 35 hedge funds held shares or bullish call options in NVRO a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

More specifically, Perceptive Advisors was the largest shareholder of Nevro Corp (NYSE:NVRO), with a stake worth $135.7 million reported as of the end of June. Trailing Perceptive Advisors was D E Shaw, which amassed a stake valued at $100.1 million. Redmile Group, Rock Springs Capital Management, and Partner Fund 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 Iron Triangle Partners allocated the biggest weight to Nevro Corp (NYSE:NVRO), around 4.83% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, setting aside 2.49 percent of its 13F equity portfolio to NVRO.

Since Nevro Corp (NYSE:NVRO) has experienced declining sentiment from hedge fund managers, logic holds that there exists a select few fund managers that slashed their positions entirely last quarter. Interestingly, James E. Flynn's Deerfield Management said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, valued at an estimated $168.4 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund said goodbye to about $42.2 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 Nevro Corp (NYSE:NVRO). These stocks are Evercore Inc. (NYSE:EVR), The Chemours Company (NYSE:CC), Elbit Systems Ltd. (NASDAQ:ESLT), Adaptive Biotechnologies Corporation (NASDAQ:ADPT), Kornit Digital Ltd. (NASDAQ:KRNT), Duck Creek Technologies, Inc. (NASDAQ:DCT), and nCino, Inc. (NASDAQ:NCNO). This group of stocks' market values resemble NVRO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVR,31,342871,0 CC,24,562111,-3 ESLT,4,48909,1 ADPT,27,2217269,-2 KRNT,21,205384,-3 DCT,18,255841,-1 NCNO,25,412906,4 Average,21.4,577899,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $578 million. That figure was $716 million in NVRO's case. Evercore Inc. (NYSE:EVR) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 4 bullish hedge fund positions. Nevro Corp (NYSE:NVRO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVRO is 65. 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately NVRO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on NVRO were disappointed as the stock returned -29.6% since the end of June (through 10/15) 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.

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