At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Sangamo Therapeutics, Inc. (NASDAQ:SGMO) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Sangamo Therapeutics, Inc. (NASDAQ:SGMO) a bargain? Prominent investors were turning bullish. The number of bullish hedge fund positions went up by 3 lately. Our calculations also showed that SGMO 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.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Oleg Nodelman of EcoR1 Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we're going to take a look at the recent hedge fund action encompassing Sangamo Therapeutics, Inc. (NASDAQ:SGMO).
How are hedge funds trading Sangamo Therapeutics, Inc. (NASDAQ:SGMO)?
At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in SGMO a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Sangamo Therapeutics, Inc. (NASDAQ:SGMO) was held by EcoR1 Capital, which reported holding $14.7 million worth of stock at the end of September. It was followed by Tang Capital Management with a $13 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Casdin Capital. In terms of the portfolio weights assigned to each position Tang Capital Management allocated the biggest weight to Sangamo Therapeutics, Inc. (NASDAQ:SGMO), around 1.82% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, dishing out 1.54 percent of its 13F equity portfolio to SGMO.
Consequently, some big names have jumped into Sangamo Therapeutics, Inc. (NASDAQ:SGMO) headfirst. EcoR1 Capital, managed by Oleg Nodelman, established the largest position in Sangamo Therapeutics, Inc. (NASDAQ:SGMO). EcoR1 Capital had $14.7 million invested in the company at the end of the quarter. Kevin C. Tang's Tang Capital Management also initiated a $13 million position during the quarter. The other funds with brand new SGMO positions are Israel Englander's Millennium Management, Henrik Rhenman's Rhenman & Partners Asset Management, and Jeffrey Jay and David Kroin's Great Point Partners.
Let's now take a look at hedge fund activity in other stocks similar to Sangamo Therapeutics, Inc. (NASDAQ:SGMO). These stocks are Cincinnati Bell Inc. (NYSE:CBB), Stoke Therapeutics, Inc. (NASDAQ:STOK), AZZ Incorporated (NYSE:AZZ), and Medifast, Inc. (NYSE:MED). This group of stocks' market caps match SGMO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBB,16,64660,1 STOK,10,141230,0 AZZ,17,30591,1 MED,16,217606,-3 Average,14.75,113522,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $94 million in SGMO's case. AZZ Incorporated (NYSE:AZZ) is the most popular stock in this table. On the other hand Stoke Therapeutics, Inc. (NASDAQ:STOK) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Sangamo Therapeutics, Inc. (NASDAQ:SGMO) 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 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on SGMO as the stock returned 74.3% since Q1 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.