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 Catabasis Pharmaceuticals Inc (NASDAQ:CATB).
Hedge fund interest in Catabasis Pharmaceuticals Inc (NASDAQ:CATB) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Ashford Inc. (NYSE:AINC), Navios Maritime Holdings Inc. (NYSE:NM), and RealNetworks Inc (NASDAQ:RNWK) to gather more data points. Our calculations also showed that CATB 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.
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. 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.
[caption id="attachment_189632" align="aligncenter" width="450"] 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 we're going to go over the latest hedge fund action surrounding Catabasis Pharmaceuticals Inc (NASDAQ:CATB).
What does smart money think about Catabasis Pharmaceuticals Inc (NASDAQ:CATB)?
At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in CATB over the last 17 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.
More specifically, Alyeska Investment Group was the largest shareholder of Catabasis Pharmaceuticals Inc (NASDAQ:CATB), with a stake worth $6.1 million reported as of the end of September. Trailing Alyeska Investment Group was Samsara BioCapital, which amassed a stake valued at $1.6 million. Winton Capital Management was 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 Samsara BioCapital allocated the biggest weight to Catabasis Pharmaceuticals Inc (NASDAQ:CATB), around 1.1% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to CATB.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Winton Capital Management).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Catabasis Pharmaceuticals Inc (NASDAQ:CATB) but similarly valued. We will take a look at Ashford Inc. (NYSE:AINC), Navios Maritime Holdings Inc. (NYSE:NM), RealNetworks Inc (NASDAQ:RNWK), and Cidara Therapeutics Inc (NASDAQ:CDTX). This group of stocks' market valuations are closest to CATB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AINC,3,1320,-1 NM,4,5471,-1 RNWK,6,16916,-1 CDTX,6,11696,-3 Average,4.75,8851,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $2 million in CATB's case. RealNetworks Inc (NASDAQ:RNWK) is the most popular stock in this table. On the other hand Ashford Inc. (NYSE:AINC) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Catabasis Pharmaceuticals Inc (NASDAQ:CATB) is even less popular than AINC. Hedge funds dodged a bullet by taking a bearish stance towards CATB. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CATB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CATB investors were disappointed as the stock returned 4.8% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.