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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) based on that data and determine whether they were really smart about the stock.
Is Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) a healthy stock for your portfolio? Investors who are in the know were getting less bullish. The number of long hedge fund positions went down by 6 lately. Our calculations also showed that DRNA 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like "the Starbucks of cannabis" to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let's take a gander at the key hedge fund action surrounding Dicerna Pharmaceuticals Inc (NASDAQ:DRNA).
What have hedge funds been doing with Dicerna Pharmaceuticals Inc (NASDAQ:DRNA)?
At Q1's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DRNA over the last 18 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.
Of the funds tracked by Insider Monkey, EcoR1 Capital, managed by Oleg Nodelman, holds the largest position in Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). EcoR1 Capital has a $61.5 million position in the stock, comprising 6.4% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $37.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions include Roberto Mignone's Bridger Management, Marc Schneidman's Aquilo Capital Management and Steve Cohen's Point72 Asset Management. In terms of the portfolio weights assigned to each position Aquilo Capital Management allocated the biggest weight to Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), around 8.86% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, earmarking 6.42 percent of its 13F equity portfolio to DRNA.
Due to the fact that Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) has faced bearish sentiment from the smart money, it's safe to say that there was a specific group of hedgies that slashed their full holdings by the end of the first quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the biggest position of all the hedgies watched by Insider Monkey, comprising an estimated $4.4 million in stock. Christiana Goh Bardon's fund, Burrage Capital Management, also sold off its stock, about $2.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks similar to Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). These stocks are Allegiant Travel Company (NASDAQ:ALGT), PROS Holdings, Inc. (NYSE:PRO), Visteon Corp (NYSE:VC), and Korn Ferry (NYSE:KFY). This group of stocks' market valuations are similar to DRNA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALGT,19,252399,-5 PRO,16,151037,-4 VC,19,152241,-10 KFY,20,136009,1 Average,18.5,172922,-4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $282 million in DRNA's case. Korn Ferry (NYSE:KFY) is the most popular stock in this table. On the other hand PROS Holdings, Inc. (NYSE:PRO) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on DRNA as the stock returned 38.3% in Q2 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.
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Disclosure: None. This article was originally published at Insider Monkey.