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In this article we will take a look at whether hedge funds think Adverum Biotechnologies, Inc. (NASDAQ:ADVM) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Adverum Biotechnologies, Inc. (NASDAQ:ADVM) worth your attention right now? Prominent investors are taking an optimistic view. The number of long hedge fund positions rose by 4 in recent months. Our calculations also showed that ADVM 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).
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.
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James E. Flynn of Deerfield Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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. Now we're going to analyze the fresh hedge fund action surrounding Adverum Biotechnologies, Inc. (NASDAQ:ADVM).
Hedge fund activity in Adverum Biotechnologies, Inc. (NASDAQ:ADVM)
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in ADVM a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, RA Capital Management held the most valuable stake in Adverum Biotechnologies, Inc. (NASDAQ:ADVM), which was worth $71.1 million at the end of the third quarter. On the second spot was Avoro Capital Advisors (venBio Select Advisor) which amassed $69.9 million worth of shares. Sonic Capital, OrbiMed Advisors, and Deerfield Management 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 Sonic Capital allocated the biggest weight to Adverum Biotechnologies, Inc. (NASDAQ:ADVM), around 34.81% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, setting aside 8.07 percent of its 13F equity portfolio to ADVM.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. RA Capital Management, managed by Peter Kolchinsky, initiated the biggest position in Adverum Biotechnologies, Inc. (NASDAQ:ADVM). RA Capital Management had $71.1 million invested in the company at the end of the quarter. Manfred Yu's Acuta Capital Partners also made a $16.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Eli Casdin's Casdin Capital, Henrik Rhenman's Rhenman & Partners Asset Management, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors.
Let's also examine hedge fund activity in other stocks similar to Adverum Biotechnologies, Inc. (NASDAQ:ADVM). These stocks are American Woodmark Corporation (NASDAQ:AMWD), Chase Corporation (NYSE:CCF), HealthStream, Inc. (NASDAQ:HSTM), and K12 Inc. (NYSE:LRN). This group of stocks' market valuations are closest to ADVM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMWD,11,14493,-6 CCF,10,67591,1 HSTM,17,46967,4 LRN,20,107274,5 Average,14.5,59081,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $353 million in ADVM's case. K12 Inc. (NYSE:LRN) is the most popular stock in this table. On the other hand Chase Corporation (NYSE:CCF) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Adverum Biotechnologies, Inc. (NASDAQ:ADVM) is more popular among hedge funds. 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 returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on ADVM as the stock returned 144.3% so far in Q2 (through June 10th) 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.
Disclosure: None. This article was originally published at Insider Monkey.