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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding BioXcel Therapeutics, Inc. (NASDAQ:BTAI).
Is BioXcel Therapeutics, Inc. (NASDAQ:BTAI) a buy here? The smart money was reducing their bets on the stock. The number of long hedge fund positions went down by 5 recently. BioXcel Therapeutics, Inc. (NASDAQ:BTAI) was in 6 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 13. Our calculations also showed that BTAI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 11 hedge funds in our database with BTAI positions at the end of the fourth quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. With all of this in mind let's view the latest hedge fund action regarding BioXcel Therapeutics, Inc. (NASDAQ:BTAI).
Do Hedge Funds Think BTAI Is A Good Stock To Buy Now?
At first quarter's end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -45% from the fourth quarter of 2020. By comparison, 10 hedge funds held shares or bullish call options in BTAI a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Logos Capital, managed by Arsani William, holds the largest position in BioXcel Therapeutics, Inc. (NASDAQ:BTAI). Logos Capital has a $17.3 million position in the stock, comprising 1.7% of its 13F portfolio. On Logos Capital's heels is Ikarian Capital, led by Neil Shahrestani, holding a $6.5 million call position; the fund has 0.2% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain John Overdeck and David Siegel's Two Sigma Advisors, Ken Griffin's Citadel Investment Group and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Logos Capital allocated the biggest weight to BioXcel Therapeutics, Inc. (NASDAQ:BTAI), around 1.68% of its 13F portfolio. Ikarian Capital is also relatively very bullish on the stock, earmarking 0.22 percent of its 13F equity portfolio to BTAI.
Because BioXcel Therapeutics, Inc. (NASDAQ:BTAI) has faced falling interest from the smart money, we can see that there was a specific group of hedge funds that slashed their entire stakes heading into Q2. Intriguingly, Doron Breen and Mori Arkin's Sphera Global Healthcare Fund dropped the biggest position of all the hedgies tracked by Insider Monkey, comprising about $1.3 million in stock, and Fred Knoll's Knoll Capital Management was right behind this move, as the fund sold off about $0.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds heading into Q2.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as BioXcel Therapeutics, Inc. (NASDAQ:BTAI) but similarly valued. These stocks are Maxeon Solar Technologies, Ltd. (NASDAQ:MAXN), Romeo Power, Inc. (NYSE:RMO), Douglas Dynamics Inc (NYSE:PLOW), Arcos Dorados Holding Inc (NYSE:ARCO), So-Young International Inc. (NASDAQ:SY), Tekla Healthcare Investors (NYSE:HQH), and First Foundation Inc (NASDAQ:FFWM). All of these stocks' market caps are similar to BTAI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAXN,6,12200,-1 RMO,12,7769,-11 PLOW,7,10189,2 ARCO,12,50056,0 SY,6,4714,-2 HQH,1,351,0 FFWM,16,65392,5 Average,8.6,21524,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.6 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $25 million in BTAI's case. First Foundation Inc (NASDAQ:FFWM) is the most popular stock in this table. On the other hand Tekla Healthcare Investors (NYSE:HQH) is the least popular one with only 1 bullish hedge fund positions. BioXcel Therapeutics, Inc. (NASDAQ:BTAI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BTAI is 30.5. 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 negative signal and 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 19.3% in 2021 through June 25th and surpassed the market again by 4.8 percentage points. Unfortunately BTAI wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BTAI investors were disappointed as the stock returned -28% since the end of March (through 6/25) 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 most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.