In this article you are going to find out whether hedge funds think Orchard Therapeutics plc (NASDAQ:ORTX) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Orchard Therapeutics plc (NASDAQ:ORTX) a superb investment today? Money managers are turning less bullish. The number of long hedge fund bets decreased by 3 in recent months. Our calculations also showed that ORTX 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). ORTX was in 19 hedge funds' portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with ORTX positions at the end of the previous quarter. 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 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 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.
[caption id="attachment_364894" align="aligncenter" width="399"] James E. Flynn of Deerfield Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 let's take a look at the key hedge fund action regarding Orchard Therapeutics plc (NASDAQ:ORTX).
How have hedgies been trading Orchard Therapeutics plc (NASDAQ:ORTX)?
At Q1's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ORTX over the last 18 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Deerfield Management held the most valuable stake in Orchard Therapeutics plc (NASDAQ:ORTX), which was worth $66.7 million at the end of the third quarter. On the second spot was RA Capital Management which amassed $57 million worth of shares. Adage Capital Management, Vivo Capital, and Driehaus Capital 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 Deerfield Management allocated the biggest weight to Orchard Therapeutics plc (NASDAQ:ORTX), around 2.12% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, dishing out 1.8 percent of its 13F equity portfolio to ORTX.
Since Orchard Therapeutics plc (NASDAQ:ORTX) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that decided to sell off their full holdings by the end of the first quarter. At the top of the heap, Jeffrey Talpins's Element Capital Management said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at close to $13.4 million in stock, and James Thomas Berylson's Berylson Capital Partners was right behind this move, as the fund cut about $2.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks similar to Orchard Therapeutics plc (NASDAQ:ORTX). We will take a look at Ingles Markets, Incorporated (NASDAQ:IMKTA), OneSpan Inc. (NASDAQ:OSPN), Bitauto Hldg Ltd (NYSE:BITA), and Azure Power Global Limited (NYSE:AZRE). All of these stocks' market caps are closest to ORTX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMKTA,11,53738,-2 OSPN,13,63457,0 BITA,18,99076,3 AZRE,4,10039,0 Average,11.5,56578,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $201 million in ORTX's case. Bitauto Hldg Ltd (NYSE:BITA) is the most popular stock in this table. On the other hand Azure Power Global Limited (NYSE:AZRE) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Orchard Therapeutics plc (NASDAQ:ORTX) 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 gained 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. Unfortunately ORTX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ORTX were disappointed as the stock returned -10.8% during the second quarter (through June 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.