It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. 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).
Autolus Therapeutics plc (NASDAQ:AUTL) has experienced a decrease in enthusiasm from smart money lately. Our calculations also showed that AUTL isn't among the 30 most popular stocks among hedge funds.
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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's take a look at the recent hedge fund action surrounding Autolus Therapeutics plc (NASDAQ:AUTL).
How have hedgies been trading Autolus Therapeutics plc (NASDAQ:AUTL)?
Heading into the first quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -45% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in AUTL over the last 14 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, Woodford Investment Management was the largest shareholder of Autolus Therapeutics plc (NASDAQ:AUTL), with a stake worth $391.6 million reported as of the end of September. Trailing Woodford Investment Management was Deerfield Management, which amassed a stake valued at $7.7 million. Baker Bros. Advisors, Marshall Wace LLP, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Autolus Therapeutics plc (NASDAQ:AUTL) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of funds who sold off their entire stakes heading into Q3. At the top of the heap, Bihua Chen's Cormorant Asset Management dropped the largest position of the "upper crust" of funds followed by Insider Monkey, worth an estimated $40.7 million in stock, and Christopher James's Partner Fund Management was right behind this move, as the fund said goodbye to about $6.7 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds heading into Q3.
Let's also examine 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 Mallinckrodt plc (NYSE:MNK), Instructure, Inc. (NYSE:INST), Aircastle Limited (NYSE:AYR), and AAR Corp. (NYSE:AIR). 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 MNK,22,223543,2 INST,22,324837,4 AYR,13,80135,-2 AIR,14,76389,-8 Average,17.75,176226,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $409 million in AUTL's case. Mallinckrodt plc (NYSE:MNK) is the most popular stock in this table. On the other hand Aircastle Limited (NYSE:AYR) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Autolus Therapeutics plc (NASDAQ:AUTL) is even less popular than AYR. Hedge funds dodged a bullet by taking a bearish stance towards AUTL. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AUTL wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); AUTL investors were disappointed as the stock returned -19.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.