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Is FATE A Good Stock To Buy According To Hedge Funds?

Debasis Saha
·6 min read

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Fate Therapeutics Inc (NASDAQ:FATE).

Is FATE a good stock to buy? Investors who are in the know were reducing their bets on the stock. The number of long hedge fund bets were cut by 2 recently. Fate Therapeutics Inc (NASDAQ:FATE) was in 34 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 36. Our calculations also showed that FATE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 36 hedge funds in our database with FATE holdings at the end of June. Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Flynn Deerfield Management
James Flynn Deerfield Management

James E. Flynn of Deerfield Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. You can subscribe to our free daily newsletter on our website. Now we're going to check out the recent hedge fund action surrounding Fate Therapeutics Inc (NASDAQ:FATE).

Do Hedge Funds Think FATE Is A Good Stock To Buy Now?

At third quarter's end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in FATE a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FATE A Good Stock To Buy?
Is FATE A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Jeremy Green's Redmile Group has the number one position in Fate Therapeutics Inc (NASDAQ:FATE), worth close to $504.8 million, amounting to 9.3% of its total 13F portfolio. The second most bullish fund manager is Farallon Capital, which holds a $124.9 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism contain Eli Casdin's Casdin Capital, Ken Griffin's Citadel Investment Group and James E. Flynn's Deerfield Management. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Fate Therapeutics Inc (NASDAQ:FATE), around 9.27% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, setting aside 5.84 percent of its 13F equity portfolio to FATE.

Due to the fact that Fate Therapeutics Inc (NASDAQ:FATE) has witnessed bearish sentiment from the smart money, we can see that there is a sect of funds who were dropping their full holdings by the end of the third quarter. Interestingly, Oleg Nodelman's EcoR1 Capital dumped the biggest stake of the 750 funds followed by Insider Monkey, totaling about $21.3 million in stock. Aaron Cowen's fund, Suvretta Capital Management, also sold off its stock, about $2.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks similar to Fate Therapeutics Inc (NASDAQ:FATE). We will take a look at Endava plc (NYSE:DAVA), Lazard Ltd (NYSE:LAZ), Stifel Financial Corp. (NYSE:SF), Brixmor Property Group Inc (NYSE:BRX), Proto Labs Inc (NYSE:PRLB), Inspire Medical Systems, Inc. (NYSE:INSP), and UFP Industries, Inc. (NASDAQ:UFPI). This group of stocks' market caps are closest to FATE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DAVA,11,131431,3 LAZ,19,604256,1 SF,18,170037,-3 BRX,18,43439,-6 PRLB,16,21040,-1 INSP,25,462980,1 UFPI,20,93473,2 Average,18.1,218094,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $1046 million in FATE's case. Inspire Medical Systems, Inc. (NYSE:INSP) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Fate Therapeutics Inc (NASDAQ:FATE) is more popular among hedge funds. Our overall hedge fund sentiment score for FATE is 81.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on FATE as the stock returned 133.3% since the end of September (through 12/18) 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.

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