Is Geron Corporation (GERN) Going to Burn These Hedge Funds?
At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Geron Corporation (NASDAQ:GERN).
Is Geron Corporation (NASDAQ:GERN) ready to rally soon? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund bets were trimmed by 1 lately. Our calculations also showed that GERN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). GERN was in 3 hedge funds' portfolios at the end of March. There were 4 hedge funds in our database with GERN positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 44 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_673876" align="aligncenter" width="400"]
John Overdeck of Two Sigma Advisors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's analyze the key hedge fund action surrounding Geron Corporation (NASDAQ:GERN).
Hedge fund activity in Geron Corporation (NASDAQ:GERN)
At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GERN over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Two Sigma Advisors was the largest shareholder of Geron Corporation (NASDAQ:GERN), with a stake worth $0.8 million reported as of the end of September. Trailing Two Sigma Advisors was Citadel Investment Group, which amassed a stake valued at $0.4 million. Citadel Investment Group was 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 Two Sigma Advisors allocated the biggest weight to Geron Corporation (NASDAQ:GERN), around 0.003% of its 13F portfolio. Citadel Investment Group is also relatively very bullish on the stock, dishing out 0.0002 percent of its 13F equity portfolio to GERN.
Because Geron Corporation (NASDAQ:GERN) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that slashed their full holdings by the end of the third quarter. It's worth mentioning that David Harding's Winton Capital Management dumped the biggest investment of all the hedgies monitored by Insider Monkey, valued at about $0.2 million in stock, Renaissance Technologies was right behind this move, as the fund said goodbye to about $0.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Geron Corporation (NASDAQ:GERN) but similarly valued. These stocks are Investors Title Company (NASDAQ:ITIC), SmartFinancial, Inc. (NASDAQ:SMBK), Galera Therapeutics, Inc. (NASDAQ:GRTX), and Minerva Neurosciences, Inc (NASDAQ:NERV). This group of stocks' market valuations are closest to GERN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ITIC,5,31169,1 SMBK,7,19483,-1 GRTX,5,33282,-1 NERV,16,28688,0 Average,8.25,28156,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $1 million in GERN's case. Minerva Neurosciences, Inc (NASDAQ:NERV) is the most popular stock in this table. On the other hand Investors Title Company (NASDAQ:ITIC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Geron Corporation (NASDAQ:GERN) is even less popular than ITIC. Hedge funds clearly dropped the ball on GERN as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on GERN as the stock returned 54.6% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
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