We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Autolus Therapeutics plc (NASDAQ:AUTL).
Is Autolus Therapeutics plc (NASDAQ:AUTL) a splendid investment now? Hedge funds are taking a pessimistic view. The number of long hedge fund bets retreated by 2 in recent months. Our calculations also showed that AUTL 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_728973" align="aligncenter" width="473"] Oleg Nodelman of EcoR1 Capital[/caption]
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. 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 also rely on the best performing hedge funds' buy/sell signals. Let's analyze the key hedge fund action surrounding Autolus Therapeutics plc (NASDAQ:AUTL).
What does smart money think about Autolus Therapeutics plc (NASDAQ:AUTL)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AUTL over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Woodford Investment Management was the largest shareholder of Autolus Therapeutics plc (NASDAQ:AUTL), with a stake worth $26 million reported as of the end of September. Trailing Woodford Investment Management was Millennium Management, which amassed a stake valued at $17.3 million. Marshall Wace, Cormorant Asset Management, and Alyeska 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 Woodford Investment Management allocated the biggest weight to Autolus Therapeutics plc (NASDAQ:AUTL), around 8.39% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, setting aside 0.47 percent of its 13F equity portfolio to AUTL.
Judging by the fact that Autolus Therapeutics plc (NASDAQ:AUTL) has witnessed bearish sentiment from the smart money, we can see that there were a few funds who were dropping their positions entirely by the end of the third quarter. It's worth mentioning that Simon Davies's Sand Grove Capital Partners dumped the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling close to $1.6 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dumped about $1.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Autolus Therapeutics plc (NASDAQ:AUTL) but similarly valued. We will take a look at Denbury Resources Inc. (NYSE:DNR), Quad/Graphics, Inc. (NYSE:QUAD), New Senior Investment Group Inc (NYSE:SNR), and Cohu, Inc. (NASDAQ:COHU). All of these stocks' market caps are closest to AUTL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DNR,11,19387,1 QUAD,9,15228,-7 SNR,10,77836,0 COHU,11,46391,1 Average,10.25,39711,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $63 million in AUTL's case. Denbury Resources Inc. (NYSE:DNR) is the most popular stock in this table. On the other hand Quad/Graphics, Inc. (NYSE:QUAD) is the least popular one with only 9 bullish hedge fund positions. Autolus Therapeutics plc (NASDAQ:AUTL) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on AUTL as the stock returned 20.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.