U.S. Markets closed

How Did Seattle Genetics, Inc. (SGEN) Compare Against Top Hedge Fund Stocks in 2019?

Asma UL Husna

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Seattle Genetics, Inc. (NASDAQ:SGEN).

Is Seattle Genetics, Inc. (NASDAQ:SGEN) an outstanding investment right now? Hedge funds are getting more bullish. The number of bullish hedge fund positions rose by 10 recently. Our calculations also showed that SGEN 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). SGEN was in 27 hedge funds' portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with SGEN holdings at the end of the previous quarter.

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 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 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.

[caption id="attachment_338175" align="aligncenter" width="500"] Felix Baker of Baker Bros.[/caption]

Felix Baker - Baker Bros.

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. Now let's take a glance at the recent hedge fund action surrounding Seattle Genetics, Inc. (NASDAQ:SGEN).

How have hedgies been trading Seattle Genetics, Inc. (NASDAQ:SGEN)?

At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 59% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SGEN over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Baker Bros. Advisors held the most valuable stake in Seattle Genetics, Inc. (NASDAQ:SGEN), which was worth $4274.9 million at the end of the third quarter. On the second spot was Matrix Capital Management which amassed $136.5 million worth of shares. Point72 Asset Management, Citadel Investment Group, and Rock Springs Capital Management 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 Baker Bros. Advisors allocated the biggest weight to Seattle Genetics, Inc. (NASDAQ:SGEN), around 29.08% of its 13F portfolio. Matrix Capital Management is also relatively very bullish on the stock, designating 3.37 percent of its 13F equity portfolio to SGEN.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, initiated the largest position in Seattle Genetics, Inc. (NASDAQ:SGEN). Polar Capital had $4.3 million invested in the company at the end of the quarter. Renaissance Technologies also made a $3.7 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors, Paul Tudor Jones's Tudor Investment Corp, and Joseph Edelman's Perceptive Advisors.

Let's go over hedge fund activity in other stocks similar to Seattle Genetics, Inc. (NASDAQ:SGEN). We will take a look at Cardinal Health, Inc. (NYSE:CAH), CNH Industrial NV (NYSE:CNHI), Grifols SA (NASDAQ:GRFS), and Concho Resources Inc. (NYSE:CXO). This group of stocks' market caps resemble SGEN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAH,25,776365,-3 CNHI,14,341649,0 GRFS,19,361224,3 CXO,28,387562,1 Average,21.5,466700,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $4588 million in SGEN's case. Concho Resources Inc. (NYSE:CXO) is the most popular stock in this table. On the other hand CNH Industrial NV (NYSE:CNHI) is the least popular one with only 14 bullish hedge fund positions. Seattle Genetics, Inc. (NASDAQ:SGEN) is not the most popular stock in this group but hedge fund interest is still above average. 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 SGEN as the stock returned 101.7% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

Related Content