In this article we will take a look at whether hedge funds think Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) investors should be aware of a decrease in hedge fund interest in recent months. CNST was in 25 hedge funds' portfolios at the end of March. There were 27 hedge funds in our database with CNST positions at the end of the previous quarter. Our calculations also showed that CNST isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to view the recent hedge fund action surrounding Constellation Pharmaceuticals, Inc. (NASDAQ:CNST).
How are hedge funds trading Constellation Pharmaceuticals, Inc. (NASDAQ:CNST)?
At Q1's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in CNST a year ago. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Avoro Capital Advisors (venBio Select Advisor) held the most valuable stake in Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), which was worth $114.7 million at the end of the third quarter. On the second spot was Cormorant Asset Management which amassed $64.1 million worth of shares. Great Point Partners, Point72 Asset Management, and Casdin Capital 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 Great Point Partners allocated the biggest weight to Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), around 6.49% of its 13F portfolio. Ghost Tree Capital is also relatively very bullish on the stock, designating 5.42 percent of its 13F equity portfolio to CNST.
Seeing as Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) has experienced falling interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of fund managers that elected to cut their entire stakes heading into Q4. At the top of the heap, Arsani William's Logos Capital cut the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $4.8 million in stock. Eric Bannasch's fund, Cadian Capital, also cut its stock, about $4.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to Constellation Pharmaceuticals, Inc. (NASDAQ:CNST). We will take a look at RLJ Lodging Trust (NYSE:RLJ), Stitch Fix, Inc. (NASDAQ:SFIX), Sunoco LP (NYSE:SUN), and Yelp Inc (NYSE:YELP). This group of stocks' market values match CNST's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RLJ,20,55694,3 SFIX,16,79738,-12 SUN,4,7173,-2 YELP,25,235924,-2 Average,16.25,94632,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $427 million in CNST's case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 4 bullish hedge fund positions. Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. Unfortunately CNST wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CNST were disappointed as the stock returned 10.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.