Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% last year. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. 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 Blueprint Medicines Corporation (NASDAQ:BPMC).
Is Blueprint Medicines Corporation (NASDAQ:BPMC) a healthy stock for your portfolio? Hedge funds are getting less bullish. The number of long hedge fund positions dropped by 1 lately. Our calculations also showed that BPMC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). BPMC was in 26 hedge funds' portfolios at the end of September. There were 27 hedge funds in our database with BPMC holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_337892" align="alignnone" width="2480"] Lei Zhang of Hillhouse Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. With all of this in mind we're going to check out the recent hedge fund action surrounding Blueprint Medicines Corporation (NASDAQ:BPMC).
What have hedge funds been doing with Blueprint Medicines Corporation (NASDAQ:BPMC)?
At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BPMC 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.
Among these funds, Hillhouse Capital Management held the most valuable stake in Blueprint Medicines Corporation (NASDAQ:BPMC), which was worth $110.1 million at the end of the third quarter. On the second spot was Cadian Capital which amassed $104.2 million worth of shares. Casdin Capital, Perceptive Advisors, and Viking Global 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 Foresite Capital allocated the biggest weight to Blueprint Medicines Corporation (NASDAQ:BPMC), around 15.69% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, setting aside 6.91 percent of its 13F equity portfolio to BPMC.
Because Blueprint Medicines Corporation (NASDAQ:BPMC) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedgies who were dropping their full holdings in the third quarter. Interestingly, Jerome Pfund and Michael Sjostrom's Sectoral Asset Management sold off the biggest stake of all the hedgies tracked by Insider Monkey, worth about $1 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Blueprint Medicines Corporation (NASDAQ:BPMC). We will take a look at GSX Techedu Inc. (NYSE:GSX), Sibanye Gold Ltd (NYSE:SBGL), Angie's List Inc (NASDAQ:ANGI), and Murphy Oil Corporation (NYSE:MUR). This group of stocks' market values are similar to BPMC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSX,3,6778,1 SBGL,14,135328,5 ANGI,21,261024,1 MUR,17,143553,-1 Average,13.75,136671,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $708 million in BPMC's case. Angie's List Inc (NASDAQ:ANGI) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Blueprint Medicines Corporation (NASDAQ:BPMC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on BPMC as the stock returned 48.6% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.