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In this article we are going to use hedge fund sentiment as a tool and determine whether Freeline Therapeutics Holdings plc (NASDAQ:FRLN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is FRLN a good stock to buy now? Money managers were turning bullish. The number of bullish hedge fund bets rose by 9 recently. Freeline Therapeutics Holdings plc (NASDAQ:FRLN) was in 9 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that FRLN 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.
Israel Englander of Millennium Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we're going to view the fresh hedge fund action surrounding Freeline Therapeutics Holdings plc (NASDAQ:FRLN).
Do Hedge Funds Think FRLN Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9 from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards FRLN over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Sectoral Asset Management held the most valuable stake in Freeline Therapeutics Holdings plc (NASDAQ:FRLN), which was worth $13.2 million at the end of the third quarter. On the second spot was Frazier Healthcare Partners which amassed $8.6 million worth of shares. Woodline Partners, Millennium Management, and Hound Partners 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 Sectoral Asset Management allocated the biggest weight to Freeline Therapeutics Holdings plc (NASDAQ:FRLN), around 1.13% of its 13F portfolio. Frazier Healthcare Partners is also relatively very bullish on the stock, dishing out 0.77 percent of its 13F equity portfolio to FRLN.
Consequently, key money managers have been driving this bullishness. Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, created the most valuable position in Freeline Therapeutics Holdings plc (NASDAQ:FRLN). Sectoral Asset Management had $13.2 million invested in the company at the end of the quarter. Alan Frazier's Frazier Healthcare Partners also initiated a $8.6 million position during the quarter. The other funds with brand new FRLN positions are Michael Rockefeller and KarláKroeker's Woodline Partners, Israel Englander's Millennium Management, and Jonathan Auerbach's Hound Partners.
Let's check out hedge fund activity in other stocks similar to Freeline Therapeutics Holdings plc (NASDAQ:FRLN). These stocks are Capstead Mortgage Corporation (NYSE:CMO), Geron Corporation (NASDAQ:GERN), Assembly Biosciences Inc (NASDAQ:ASMB), TrueCar Inc (NASDAQ:TRUE), Apollo Investment Corp. (NASDAQ:AINV), ZIOPHARM Oncology Inc. (NASDAQ:ZIOP), and Ellington Financial Inc. (NYSE:EFC). All of these stocks' market caps resemble FRLN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMO,15,60667,2 GERN,16,133881,5 ASMB,22,195597,3 TRUE,18,103244,1 AINV,5,21619,-4 ZIOP,13,102366,2 EFC,11,37613,3 Average,14.3,93570,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $30 million in FRLN's case. Assembly Biosciences Inc (NASDAQ:ASMB) is the most popular stock in this table. On the other hand Apollo Investment Corp. (NASDAQ:AINV) is the least popular one with only 5 bullish hedge fund positions. Freeline Therapeutics Holdings plc (NASDAQ:FRLN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FRLN is 28.8. 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 gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on FRLN as the stock returned 12.1% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.