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Did Hedge Funds Drop The Ball On Clovis Oncology Inc (CLVS) ?

Nina Todic

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Clovis Oncology Inc (NASDAQ:CLVS)? The smart money sentiment can provide an answer to this question.

Clovis Oncology Inc (NASDAQ:CLVS) has seen a decrease in support from the world's most elite money managers recently. CLVS was in 20 hedge funds' portfolios at the end of September. There were 24 hedge funds in our database with CLVS holdings at the end of the previous quarter. Our calculations also showed that CLVS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 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 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_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]

David E. Shaw of D.E. Shaw
David E. Shaw of D.E. Shaw

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's check out the key hedge fund action regarding Clovis Oncology Inc (NASDAQ:CLVS).

What have hedge funds been doing with Clovis Oncology Inc (NASDAQ:CLVS)?

At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in CLVS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Palo Alto Investors, managed by William Leland Edwards, holds the most valuable position in Clovis Oncology Inc (NASDAQ:CLVS). Palo Alto Investors has a $18.6 million position in the stock, comprising 1.2% of its 13F portfolio. Sitting at the No. 2 spot is Jeremy Green of Redmile Group, with a $14.2 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain Steven Boyd's Armistice Capital, David E. Shaw's D E Shaw and Arthur B Cohen and Joseph Healey's Healthcor Management. In terms of the portfolio weights assigned to each position Healthcare Value Capital allocated the biggest weight to Clovis Oncology Inc (NASDAQ:CLVS), around 1.78% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, earmarking 1.28 percent of its 13F equity portfolio to CLVS.

Seeing as Clovis Oncology Inc (NASDAQ:CLVS) has experienced falling interest from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedge funds who were dropping their full holdings in the third quarter. It's worth mentioning that Himanshu Gulati's Antara Capital dropped the largest position of the "upper crust" of funds watched by Insider Monkey, comprising about $42.6 million in stock, and Samuel Isaly's OrbiMed Advisors was right behind this move, as the fund cut about $28.5 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds in the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Clovis Oncology Inc (NASDAQ:CLVS) but similarly valued. These stocks are Gold Standard Ventures Corp (NYSE:GSV), Enochian Biosciences Inc. (NASDAQ:ENOB), First Internet Bancorp (NASDAQ:INBK), and SB One Bancorp (NASDAQ:SBBX). This group of stocks' market caps resemble CLVS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSV,2,177,0 ENOB,2,210,1 INBK,6,2990,3 SBBX,7,19998,1 Average,4.25,5844,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $65 million in CLVS's case. SB One Bancorp (NASDAQ:SBBX) is the most popular stock in this table. On the other hand Gold Standard Ventures Corp (NYSE:GSV) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Clovis Oncology Inc (NASDAQ:CLVS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CLVS as the stock returned 279.9% during the first two months of Q4 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.

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

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