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Allakos Inc. (ALLK): These Hedge Funds Regret Cashing Out Too Early

Nina Todic

Is Allakos Inc. (NASDAQ:ALLK) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Allakos Inc. (NASDAQ:ALLK) investors should pay attention to a decrease in hedge fund interest lately. Our calculations also showed that ALLK isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the 21st century investor’s toolkit there are tons of indicators market participants have at their disposal to appraise stocks. A duo of the most underrated indicators are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the best hedge fund managers can outpace the market by a superb margin (see the details here).

Richard Driehaus

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the recent hedge fund action encompassing Allakos Inc. (NASDAQ:ALLK).

What have hedge funds been doing with Allakos Inc. (NASDAQ:ALLK)?

Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the first quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in ALLK a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ALLK Positions

The largest stake in Allakos Inc. (NASDAQ:ALLK) was held by Redmile Group, which reported holding $99.7 million worth of stock at the end of March. It was followed by Cormorant Asset Management with a $28.2 million position. Other investors bullish on the company included Samsara BioCapital, Rock Springs Capital Management, and Driehaus Capital.

Judging by the fact that Allakos Inc. (NASDAQ:ALLK) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that slashed their entire stakes heading into Q3. It's worth mentioning that Ken Griffin's Citadel Investment Group cut the largest investment of the 750 funds tracked by Insider Monkey, comprising about $0.9 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund cut about $0.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds heading into Q3.

Let's now review hedge fund activity in other stocks similar to Allakos Inc. (NASDAQ:ALLK). We will take a look at Scientific Games Corporation (NASDAQ:SGMS), Compass Minerals International, Inc. (NYSE:CMP), FGL Holdings (NYSE:FG), and SPS Commerce, Inc. (NASDAQ:SPSC). This group of stocks' market values are similar to ALLK's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SGMS,27,578766,-1 CMP,16,81209,3 FG,24,200982,1 SPSC,18,170860,-1 Average,21.25,257954,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $176 million in ALLK's case. Scientific Games Corporation (NASDAQ:SGMS) is the most popular stock in this table. On the other hand Compass Minerals International, Inc. (NYSE:CMP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Allakos Inc. (NASDAQ:ALLK) is even less popular than CMP. Hedge funds clearly dropped the ball on ALLK as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on ALLK as the stock returned 81.5% during the third quarter and outperformed the market by an even larger margin.

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

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