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Hedge Fund Sentiment Is Stagnant On Organovo Holdings Inc (ONVO)

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. What do these smart investors think about Organovo Holdings Inc (NYSE:ONVO)?

Hedge fund interest in Organovo Holdings Inc (NYSE:ONVO) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ONVO to other stocks including Verona Pharma plc (NASDAQ:VRNA), Nabriva Therapeutics AG-ADR (NASDAQ:NBRV), and China Automotive Systems, Inc. (NASDAQ:CAAS) to get a better sense of its popularity. 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 58 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_189632" align="aligncenter" width="400"] David Harding of Winton Capital Management[/caption]

David Harding

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to review the key hedge fund action regarding Organovo Holdings Inc (NYSE:ONVO).

What have hedge funds been doing with Organovo Holdings Inc (NYSE:ONVO)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ONVO over the last 18 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is ONVO A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Organovo Holdings Inc (NYSE:ONVO), with a stake worth $3 million reported as of the end of September. Trailing Renaissance Technologies was Winton Capital Management, which amassed a stake valued at $0.1 million. Millennium Management, D E Shaw, and Citadel Investment Group 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 Winton Capital Management allocated the biggest weight to Organovo Holdings Inc (NYSE:ONVO), around 0.0034% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0029 percent of its 13F equity portfolio to ONVO.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Peconic Partners LLC. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).

Let's check out hedge fund activity in other stocks similar to Organovo Holdings Inc (NYSE:ONVO). These stocks are Verona Pharma plc (NASDAQ:VRNA), Nabriva Therapeutics AG-ADR (NASDAQ:NBRV), China Automotive Systems, Inc. (NASDAQ:CAAS), and OFS Capital Corp (NASDAQ:OFS). This group of stocks' market values are closest to ONVO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VRNA,2,11303,-1 NBRV,8,7146,-1 CAAS,1,796,0 OFS,3,625,1 Average,3.5,4968,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $3 million in ONVO's case. Nabriva Therapeutics AG-ADR (NASDAQ:NBRV) is the most popular stock in this table. On the other hand China Automotive Systems, Inc. (NASDAQ:CAAS) is the least popular one with only 1 bullish hedge fund positions. Organovo Holdings Inc (NYSE:ONVO) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on ONVO as the stock returned 53.7% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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