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2019 Review: Top Hedge Fund Stocks vs. FibroGen Inc (FGEN)

Asma UL Husna

2018's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards FibroGen Inc (NASDAQ:FGEN) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

FibroGen Inc (NASDAQ:FGEN) was in 24 hedge funds' portfolios at the end of September. FGEN investors should pay attention to an increase in activity from the world's largest hedge funds lately. There were 16 hedge funds in our database with FGEN positions at the end of the previous quarter. Our calculations also showed that FGEN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_337892" align="aligncenter" width="500"] Lei Zhang of Hillhouse Capital Management[/caption]

Lei Zhang Hillhouse Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let's review the latest hedge fund action surrounding FibroGen Inc (NASDAQ:FGEN).

What does smart money think about FibroGen Inc (NASDAQ:FGEN)?

At Q3's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FGEN over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Hillhouse Capital Management was the largest shareholder of FibroGen Inc (NASDAQ:FGEN), with a stake worth $129.6 million reported as of the end of September. Trailing Hillhouse Capital Management was Adage Capital Management, which amassed a stake valued at $55.5 million. EcoR1 Capital, Farallon Capital, and Citadel Investment Group 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 EcoR1 Capital allocated the biggest weight to FibroGen Inc (NASDAQ:FGEN), around 6.04% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, designating 2.13 percent of its 13F equity portfolio to FGEN.

As aggregate interest increased, key hedge funds have jumped into FibroGen Inc (NASDAQ:FGEN) headfirst. Hillhouse Capital Management, managed by Lei Zhang, created the most outsized position in FibroGen Inc (NASDAQ:FGEN). Hillhouse Capital Management had $129.6 million invested in the company at the end of the quarter. Joel Greenblatt's Gotham Asset Management also made a $3 million investment in the stock during the quarter. The other funds with brand new FGEN positions are Paul Marshall and Ian Wace's Marshall Wace, Israel Englander's Millennium Management, and Michael Kharitonov and Jon David McAuliffe's Voleon Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as FibroGen Inc (NASDAQ:FGEN) but similarly valued. These stocks are Viavi Solutions Inc (NASDAQ:VIAV), Intelsat S.A. (NYSE:I), Avista Corp (NYSE:AVA), and BankUnited, Inc. (NYSE:BKU). All of these stocks' market caps resemble FGEN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIAV,30,333312,8 I,48,1063619,6 AVA,15,137623,4 BKU,21,420103,2 Average,28.5,488664,5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $489 million. That figure was $335 million in FGEN's case. Intelsat S.A. (NYSE:I) is the most popular stock in this table. On the other hand Avista Corp (NYSE:AVA) is the least popular one with only 15 bullish hedge fund positions. FibroGen Inc (NASDAQ:FGEN) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately FGEN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FGEN investors were disappointed as the stock returned -7.3% in 2019 and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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