The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Adaptive Biotechnologies Corporation (NASDAQ:ADPT) and find out how it is affected by hedge funds' moves.
Adaptive Biotechnologies Corporation (NASDAQ:ADPT) investors should be aware of a decrease in enthusiasm from smart money in recent months. Our calculations also showed that ADPT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26082" align="aligncenter" width="466"] Andreas Halvorsen of Viking Global[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. With all of this in mind let's go over the new hedge fund action encompassing Adaptive Biotechnologies Corporation (NASDAQ:ADPT).
What have hedge funds been doing with Adaptive Biotechnologies Corporation (NASDAQ:ADPT)?
Heading into the fourth quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -45% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ADPT 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.
Among these funds, Viking Global held the most valuable stake in Adaptive Biotechnologies Corporation (NASDAQ:ADPT), which was worth $1186.8 million at the end of the third quarter. On the second spot was Matrix Capital Management which amassed $535.6 million worth of shares. Senator Investment Group, Baker Bros. Advisors, and Tiger 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 Matrix Capital Management allocated the biggest weight to Adaptive Biotechnologies Corporation (NASDAQ:ADPT), around 13.21% of its 13F portfolio. Tiger Management is also relatively very bullish on the stock, earmarking 13.06 percent of its 13F equity portfolio to ADPT.
Since Adaptive Biotechnologies Corporation (NASDAQ:ADPT) has faced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of funds who were dropping their positions entirely last quarter. Interestingly, Behzad Aghazadeh's venBio Select Advisor dropped the largest position of the 750 funds monitored by Insider Monkey, valued at close to $9.7 million in stock. Jacob Doft's fund, Highline Capital Management, also dropped its stock, about $5.8 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 17 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Adaptive Biotechnologies Corporation (NASDAQ:ADPT) but similarly valued. These stocks are Switch, Inc. (NYSE:SWCH), Mantech International Corp (NASDAQ:MANT), Itau CorpBanca (NYSE:ITCB), and TerraForm Power Inc (NASDAQ:TERP). All of these stocks' market caps resemble ADPT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWCH,14,322417,1 MANT,14,17786,3 ITCB,1,3608,0 TERP,11,247376,-1 Average,10,147797,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $2018 million in ADPT's case. Switch, Inc. (NYSE:SWCH) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Adaptive Biotechnologies Corporation (NASDAQ:ADPT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ADPT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ADPT were disappointed as the stock returned -12% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.