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Hedge Funds Are Crazy About Fate Therapeutics Inc (FATE)

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We at Insider Monkey have gone over 873 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th. In this article, we look at what those funds think of Fate Therapeutics Inc (NASDAQ:FATE) based on that data.

Is Fate Therapeutics Inc (NASDAQ:FATE) a healthy stock for your portfolio? Prominent investors were getting more bullish. The number of bullish hedge fund bets rose by 1 in recent months. Fate Therapeutics Inc (NASDAQ:FATE) was in 40 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FATE isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 39 hedge funds in our database with FATE positions at the end of the first quarter.

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 79 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.

Cathie Wood ARK Investment Management
Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to review the key hedge fund action surrounding Fate Therapeutics Inc (NASDAQ:FATE).

Do Hedge Funds Think FATE Is A Good Stock To Buy Now?

At Q2's end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FATE over the last 24 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Redmile Group held the most valuable stake in Fate Therapeutics Inc (NASDAQ:FATE), which was worth $1124.6 million at the end of the second quarter. On the second spot was ARK Investment Management which amassed $649.5 million worth of shares. Casdin Capital, Farallon Capital, and Lone Pine 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 Redmile Group allocated the biggest weight to Fate Therapeutics Inc (NASDAQ:FATE), around 16.64% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, earmarking 13.69 percent of its 13F equity portfolio to FATE.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, established the most outsized position in Fate Therapeutics Inc (NASDAQ:FATE). Holocene Advisors had $20.8 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $4.4 million investment in the stock during the quarter. The following funds were also among the new FATE investors: Renaissance Technologies, Andre F. Perold's HighVista Strategies, and Michael Gelband's ExodusPoint Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Fate Therapeutics Inc (NASDAQ:FATE) but similarly valued. We will take a look at ContextLogic Inc. (NASDAQ:WISH), Kilroy Realty Corp (NYSE:KRC), Nutanix, Inc. (NASDAQ:NTNX), Tilray, Inc. (NASDAQ:TLRY), OneMain Holdings Inc (NYSE:OMF), Beam Therapeutics Inc. (NASDAQ:BEAM), and United Therapeutics Corporation (NASDAQ:UTHR). All of these stocks' market caps are closest to FATE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WISH,21,139664,-4 KRC,26,241032,-1 NTNX,29,1165939,0 TLRY,17,94865,-4 OMF,41,994909,-2 BEAM,21,1771681,3 UTHR,45,2334119,3 Average,28.6,963173,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $963 million. That figure was $2767 million in FATE's case. United Therapeutics Corporation (NASDAQ:UTHR) is the most popular stock in this table. On the other hand Tilray, Inc. (NASDAQ:TLRY) is the least popular one with only 17 bullish hedge fund positions. Fate Therapeutics Inc (NASDAQ:FATE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FATE is 77.1. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately FATE wasn't nearly as popular as these 5 stocks and hedge funds that were betting on FATE were disappointed as the stock returned -34.8% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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