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Did Hedge Funds Drop The Ball On NanoString Technologies Inc (NSTG)?

Reymerlyn Martin

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

NanoString Technologies Inc (NASDAQ:NSTG) investors should be aware of a decrease in hedge fund sentiment recently. NSTG was in 15 hedge funds' portfolios at the end of December. There were 16 hedge funds in our database with NSTG holdings at the end of the previous quarter. Our calculations also showed that NSTG isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Broadfin Kevin Kotler

Let's go over the fresh hedge fund action regarding NanoString Technologies Inc (NASDAQ:NSTG).

What does the smart money think about NanoString Technologies Inc (NASDAQ:NSTG)?

At Q4's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in NSTG a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

NSTG_may2019

More specifically, Cadian Capital was the largest shareholder of NanoString Technologies Inc (NASDAQ:NSTG), with a stake worth $34 million reported as of the end of December. Trailing Cadian Capital was Broadfin Capital, which amassed a stake valued at $10.7 million. Polar Capital, Pura Vida Investments, and Archon Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as NanoString Technologies Inc (NASDAQ:NSTG) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there is a sect of funds that elected to cut their entire stakes by the end of the third quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management sold off the biggest investment of the "upper crust" of funds followed by Insider Monkey, worth close to $7.1 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dumped its stock, about $3.4 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds by the end of the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as NanoString Technologies Inc (NASDAQ:NSTG) but similarly valued. These stocks are Secoo Holding Limited (NASDAQ:SECO), Quanex Building Products Corporation (NYSE:NX), Vivint Solar Inc (NYSE:VSLR), and Construction Partners, Inc. (NASDAQ:ROAD). This group of stocks' market valuations are similar to NSTG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SECO,2,10897,-3 NX,16,42740,2 VSLR,16,23369,6 ROAD,8,8991,-1 Average,10.5,21499,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $93 million in NSTG's case. Quanex Building Products Corporation (NYSE:NX) is the most popular stock in this table. On the other hand Secoo Holding Limited (NASDAQ:SECO) is the least popular one with only 2 bullish hedge fund positions. NanoString Technologies Inc (NASDAQ:NSTG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on NSTG as the stock returned 61.3% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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