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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Evelo Biosciences, Inc. (NASDAQ:EVLO)? The smart money sentiment can provide an answer to this question.
Evelo Biosciences, Inc. (NASDAQ:EVLO) has seen an increase in hedge fund sentiment in recent months. Evelo Biosciences, Inc. (NASDAQ:EVLO) was in 5 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 6. Our calculations also showed that EVLO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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 take a gander at the fresh hedge fund action regarding Evelo Biosciences, Inc. (NASDAQ:EVLO).
Do Hedge Funds Think EVLO Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EVLO over the last 23 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Israel Englander's Millennium Management has the number one position in Evelo Biosciences, Inc. (NASDAQ:EVLO), worth close to $1.3 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is CaaS Capital, led by Frank Fu, holding a $0.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include John Overdeck and David Siegel's Two Sigma Advisors, Cliff Asness's AQR Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position CaaS Capital allocated the biggest weight to Evelo Biosciences, Inc. (NASDAQ:EVLO), around 0.01% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, earmarking 0.0019 percent of its 13F equity portfolio to EVLO.
As aggregate interest increased, key hedge funds were breaking ground themselves. CaaS Capital, managed by Frank Fu, established the most valuable position in Evelo Biosciences, Inc. (NASDAQ:EVLO). CaaS Capital had $0.9 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also made a $0.7 million investment in the stock during the quarter. The only other fund with a new position in the stock is Cliff Asness's AQR Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Evelo Biosciences, Inc. (NASDAQ:EVLO) but similarly valued. These stocks are Titan International Inc (NYSE:TWI), Consolidated Communications Holdings Inc (NASDAQ:CNSL), Allot Ltd. (NASDAQ:ALLT), Evolus, Inc. (NASDAQ:EOLS), Conn's, Inc. (NASDAQ:CONN), Orchid Island Capital, Inc. (NYSE:ORC), and Marinus Pharmaceuticals Inc (NASDAQ:MRNS). This group of stocks' market valuations are closest to EVLO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWI,20,150026,1 CNSL,12,45296,-1 ALLT,13,190113,-1 EOLS,7,13562,-3 CONN,12,40397,1 ORC,8,19857,-2 MRNS,16,212948,-1 Average,12.6,96028,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.6 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $4 million in EVLO's case. Titan International Inc (NYSE:TWI) is the most popular stock in this table. On the other hand Evolus, Inc. (NASDAQ:EOLS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Evelo Biosciences, Inc. (NASDAQ:EVLO) is even less popular than EOLS. Our overall hedge fund sentiment score for EVLO is 32. 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. Hedge funds clearly dropped the ball on EVLO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. A small number of hedge funds were also right about betting on EVLO as the stock returned 53.7% since Q1 (through June 18th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.