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EXACT Sciences Corporation (EXAS) vs. Top 20 Hedge Fund Stocks in 2019

Abigail Fisher

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like EXACT Sciences Corporation (NASDAQ:EXAS).

EXACT Sciences Corporation (NASDAQ:EXAS) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. Our calculations also showed that EXAS 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).

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_746825" align="aligncenter" width="473"] Matthew Halbower of Pentwater Capital[/caption]

Matthew Halbower Pentwater Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. Now we're going to review the latest hedge fund action surrounding EXACT Sciences Corporation (NASDAQ:EXAS).

What does smart money think about EXACT Sciences Corporation (NASDAQ:EXAS)?

Heading into the fourth quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXAS over the last 17 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Viking Global held the most valuable stake in EXACT Sciences Corporation (NASDAQ:EXAS), which was worth $197.5 million at the end of the third quarter. On the second spot was D E Shaw which amassed $94.8 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Columbus Circle Investors 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 Atika Capital allocated the biggest weight to EXACT Sciences Corporation (NASDAQ:EXAS), around 1.9% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, earmarking 1.55 percent of its 13F equity portfolio to EXAS.

As industrywide interest jumped, key hedge funds have been driving this bullishness. PEAK6 Capital Management, managed by Matthew Hulsizer, established the most outsized position in EXACT Sciences Corporation (NASDAQ:EXAS). PEAK6 Capital Management had $5.6 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $5.2 million position during the quarter. The following funds were also among the new EXAS investors: Joe DiMenna's ZWEIG DIMENNA PARTNERS, Carl Tiedemann and Michael Tiedemann's TIG Advisors, and Matthew Halbower's Pentwater Capital Management.

Let's also examine hedge fund activity in other stocks similar to EXACT Sciences Corporation (NASDAQ:EXAS). We will take a look at Wynn Resorts, Limited (NASDAQ:WYNN), Regency Centers Corp (NASDAQ:REG), Cenovus Energy Inc (NYSE:CVE), and Continental Resources, Inc. (NYSE:CLR). This group of stocks' market caps match EXAS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WYNN,36,1171401,-3 REG,16,233615,4 CVE,25,635156,8 CLR,37,434858,3 Average,28.5,618758,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $619 million. That figure was $586 million in EXAS's case. Continental Resources, Inc. (NYSE:CLR) is the most popular stock in this table. On the other hand Regency Centers Corp (NASDAQ:REG) is the least popular one with only 16 bullish hedge fund positions. EXACT Sciences Corporation (NASDAQ:EXAS) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on EXAS as the stock returned 53.7% in 2019 (through December 23rd) 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.

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