The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Adverum Biotechnologies, Inc. (NASDAQ:ADVM) and find out how it is affected by hedge funds' moves.
Is Adverum Biotechnologies, Inc. (NASDAQ:ADVM) undervalued? Money managers are selling. The number of long hedge fund bets shrunk by 4 recently. Our calculations also showed that ADVM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ADVM was in 11 hedge funds' portfolios at the end of the third quarter of 2019. There were 15 hedge funds in our database with ADVM positions at the end of the previous quarter. Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_341400" align="aligncenter" width="600"] Samuel Isaly of OrbiMed Advisors[/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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's view the fresh hedge fund action regarding Adverum Biotechnologies, Inc. (NASDAQ:ADVM).
What does smart money think about Adverum Biotechnologies, Inc. (NASDAQ:ADVM)?
At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ADVM over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Adverum Biotechnologies, Inc. (NASDAQ:ADVM) was held by venBio Select Advisor, which reported holding $23.2 million worth of stock at the end of September. It was followed by OrbiMed Advisors with a $21.9 million position. Other investors bullish on the company included Renaissance Technologies, Ghost Tree Capital, and Adage Capital Management. In terms of the portfolio weights assigned to each position Ghost Tree Capital allocated the biggest weight to Adverum Biotechnologies, Inc. (NASDAQ:ADVM), around 2.01% of its 13F portfolio. venBio Select Advisor is also relatively very bullish on the stock, earmarking 0.97 percent of its 13F equity portfolio to ADVM.
Judging by the fact that Adverum Biotechnologies, Inc. (NASDAQ:ADVM) has witnessed declining sentiment from the smart money, it's safe to say that there were a few hedge funds who sold off their entire stakes in the third quarter. Interestingly, Brian Ashford-Russell and Tim Woolley's Polar Capital sold off the largest investment of the "upper crust" of funds tracked by Insider Monkey, totaling close to $7.4 million in stock, and Brad Farber's Atika Capital was right behind this move, as the fund dumped about $4.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds in the third quarter.
Let's now review hedge fund activity in other stocks similar to Adverum Biotechnologies, Inc. (NASDAQ:ADVM). We will take a look at Teekay Tankers Ltd. (NYSE:TNK), Clearwater Paper Corp (NYSE:CLW), MagnaChip Semiconductor Corporation (NYSE:MX), and Lawson Products, Inc. (NASDAQ:LAWS). All of these stocks' market caps resemble ADVM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TNK,18,30256,6 CLW,7,20731,-1 MX,19,138277,-2 LAWS,7,16177,2 Average,12.75,51360,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $83 million in ADVM's case. MagnaChip Semiconductor Corporation (NYSE:MX) is the most popular stock in this table. On the other hand Clearwater Paper Corp (NYSE:CLW) is the least popular one with only 7 bullish hedge fund positions. Adverum Biotechnologies, Inc. (NASDAQ:ADVM) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ADVM as the stock returned 100.2% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.