Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Calithera Biosciences Inc (NASDAQ:CALA) has seen a decrease in hedge fund sentiment in recent months. CALA was in 12 hedge funds' portfolios at the end of September. There were 15 hedge funds in our database with CALA positions at the end of the previous quarter. Our calculations also showed that CALA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital 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. 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. We're going to check out the latest hedge fund action regarding Calithera Biosciences Inc (NASDAQ:CALA).
What have hedge funds been doing with Calithera Biosciences Inc (NASDAQ:CALA)?
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CALA over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Biotechnology Value Fund was the largest shareholder of Calithera Biosciences Inc (NASDAQ:CALA), with a stake worth $20.9 million reported as of the end of September. Trailing Biotechnology Value Fund was Adage Capital Management, which amassed a stake valued at $4 million. Point72 Asset Management, Renaissance Technologies, and GLG Partners 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 Biotechnology Value Fund allocated the biggest weight to Calithera Biosciences Inc (NASDAQ:CALA), around 2.19% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to CALA.
Judging by the fact that Calithera Biosciences Inc (NASDAQ:CALA) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there were a few fund managers that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Anand Parekh's Alyeska Investment Group dropped the biggest position of all the hedgies followed by Insider Monkey, valued at about $1.9 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also cut its stock, about $0.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Calithera Biosciences Inc (NASDAQ:CALA) but similarly valued. We will take a look at Yatra Online, Inc. (NASDAQ:YTRA), Delta Apparel, Inc. (NYSE:DLA), Inspired Entertainment, Inc. (NASDAQ:INSE), and Luna Innovations Incorporated (NASDAQ:LUNA). This group of stocks' market valuations resemble CALA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YTRA,7,42270,0 DLA,2,7416,-1 INSE,6,35260,0 LUNA,7,12148,4 Average,5.5,24274,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $34 million in CALA's case. Yatra Online, Inc. (NASDAQ:YTRA) is the most popular stock in this table. On the other hand Delta Apparel, Inc. (NYSE:DLA) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Calithera Biosciences Inc (NASDAQ:CALA) is more popular among hedge funds. 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. Hedge funds were also right about betting on CALA as the stock returned 59.2% during the first two months of Q4 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.