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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards EXACT Sciences Corporation (NASDAQ:EXAS).
EXACT Sciences Corporation (NASDAQ:EXAS) investors should pay attention to a decrease in support from the world's most elite money managers recently. EXACT Sciences Corporation (NASDAQ:EXAS) was in 35 hedge funds' portfolios at the end of June. The all time high for this statistic is 43. Our calculations also showed that EXAS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Ricky Sandler of Eminence Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to analyze the latest hedge fund action surrounding EXACT Sciences Corporation (NASDAQ:EXAS).
Do Hedge Funds Think EXAS Is A Good Stock To Buy Now?
At Q2's end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXAS over the last 24 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, ARK Investment Management held the most valuable stake in EXACT Sciences Corporation (NASDAQ:EXAS), which was worth $1333.4 million at the end of the second quarter. On the second spot was Casdin Capital which amassed $293.4 million worth of shares. Zevenbergen Capital Investments, Eminence Capital, and Rock Springs Capital 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 Casdin Capital allocated the biggest weight to EXACT Sciences Corporation (NASDAQ:EXAS), around 7.45% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, earmarking 5.34 percent of its 13F equity portfolio to EXAS.
Due to the fact that EXACT Sciences Corporation (NASDAQ:EXAS) has faced declining sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedge funds that decided to sell off their entire stakes heading into Q3. Intriguingly, Dmitry Balyasny's Balyasny Asset Management sold off the biggest position of all the hedgies tracked by Insider Monkey, comprising close to $33.9 million in stock, and Xiuping Li's Opti Capital Management was right behind this move, as the fund said goodbye to about $32.9 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 6 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as EXACT Sciences Corporation (NASDAQ:EXAS) but similarly valued. These stocks are Waters Corporation (NYSE:WAT), Invitation Homes Inc. (NYSE:INVH), Huntington Bancshares Incorporated (NASDAQ:HBAN), Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), CarMax Inc (NYSE:KMX), TransUnion (NYSE:TRU), and DraftKings Inc. (NASDAQ:DKNG). This group of stocks' market values are closest to EXAS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WAT,40,2643422,6 INVH,33,1131870,5 HBAN,33,443477,6 HZNP,56,4325284,8 KMX,39,1619512,-7 TRU,35,2609504,-6 DKNG,26,927908,-17 Average,37.4,1957282,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.4 hedge funds with bullish positions and the average amount invested in these stocks was $1957 million. That figure was $2374 million in EXAS's case. Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) is the most popular stock in this table. On the other hand DraftKings Inc. (NASDAQ:DKNG) is the least popular one with only 26 bullish hedge fund positions. EXACT Sciences Corporation (NASDAQ:EXAS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EXAS is 38.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and surpassed the market again by 4.4 percentage points. Unfortunately EXAS wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); EXAS investors were disappointed as the stock returned -24.8% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.