The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards XOMA Corp (NASDAQ:XOMA), and what that likely means for the prospects of the company and its stock.
XOMA Corp (NASDAQ:XOMA) has seen a decrease in support from the world's most elite money managers recently. Our calculations also showed that XOMA 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.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="alignnone" width="600"] David Harding of Winton Capital Management[/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 check out the fresh hedge fund action regarding XOMA Corp (NASDAQ:XOMA).
How have hedgies been trading XOMA Corp (NASDAQ:XOMA)?
At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards XOMA 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.
The largest stake in XOMA Corp (NASDAQ:XOMA) was held by Biotechnology Value Fund, which reported holding $35.1 million worth of stock at the end of September. It was followed by Opaleye Management with a $7.4 million position. Other investors bullish on the company included Athanor Capital, Winton Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Biotechnology Value Fund allocated the biggest weight to XOMA Corp (NASDAQ:XOMA), around 3.69% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, designating 2.67 percent of its 13F equity portfolio to XOMA.
Since XOMA Corp (NASDAQ:XOMA) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that elected to cut their full holdings last quarter. At the top of the heap, Donald Sussman's Paloma Partners dropped the biggest investment of all the hedgies tracked by Insider Monkey, comprising close to $0.5 million in stock, and Paul Marshall and Ian Wace's Marshall Wace was right behind this move, as the fund said goodbye to about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as XOMA Corp (NASDAQ:XOMA) but similarly valued. These stocks are J Alexander's Holdings Inc (NYSE:JAX), Enzo Biochem, Inc. (NYSE:ENZ), Forum Energy Technologies Inc (NYSE:FET), and Bel Fuse, Inc. (NASDAQ:BELFA). All of these stocks' market caps are similar to XOMA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JAX,9,29019,-2 ENZ,10,38824,0 FET,16,19195,-3 BELFA,4,5629,0 Average,9.75,23167,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $44 million in XOMA's case. Forum Energy Technologies Inc (NYSE:FET) is the most popular stock in this table. On the other hand Bel Fuse, Inc. (NASDAQ:BELFA) is the least popular one with only 4 bullish hedge fund positions. XOMA Corp (NASDAQ:XOMA) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on XOMA as the stock returned 24.2% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.