We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like OncoCyte Corporation (NYSE:OCX).
Is OncoCyte Corporation (NYSE:OCX) a cheap investment right now? Money managers are reducing their bets on the stock. The number of bullish hedge fund bets decreased by 2 recently. Our calculations also showed that OCX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). OCX was in 4 hedge funds' portfolios at the end of September. There were 6 hedge funds in our database with OCX 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to go over the key hedge fund action regarding OncoCyte Corporation (NYSE:OCX).
Hedge fund activity in OncoCyte Corporation (NYSE:OCX)
At Q3's end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards OCX over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Broadwood Capital, managed by Neal C. Bradsher, holds the largest position in OncoCyte Corporation (NYSE:OCX). Broadwood Capital has a $23.3 million position in the stock, comprising 3.2% of its 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $0.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism comprise Israel Englander's Millennium Management, Andrew Weiss's Weiss Asset Management and . In terms of the portfolio weights assigned to each position Broadwood Capital allocated the biggest weight to OncoCyte Corporation (NYSE:OCX), around 3.24% of its 13F portfolio. Weiss Asset Management is also relatively very bullish on the stock, setting aside 0.003 percent of its 13F equity portfolio to OCX.
Due to the fact that OncoCyte Corporation (NYSE:OCX) has faced a decline in interest from the smart money, logic holds that there exists a select few fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Mark Broach's Manatuck Hill Partners cut the largest stake of the "upper crust" of funds tracked by Insider Monkey, totaling about $0.5 million in stock. Peter Algert and Kevin Coldiron's fund, Algert Coldiron Investors, also cut its stock, about $0.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as OncoCyte Corporation (NYSE:OCX) but similarly valued. These stocks are scPharmaceuticals Inc. (NASDAQ:SCPH), LRAD Corporation (NASDAQ:LRAD), Leaf Group Ltd. (NYSE:LEAF), and Savara, Inc. (NASDAQ:SVRA). This group of stocks' market valuations are closest to OCX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCPH,5,41043,0 LRAD,6,11989,4 LEAF,8,25548,0 SVRA,10,18395,0 Average,7.25,24244,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $24 million in OCX's case. Savara, Inc. (NASDAQ:SVRA) is the most popular stock in this table. On the other hand scPharmaceuticals Inc. (NASDAQ:SCPH) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks OncoCyte Corporation (NYSE:OCX) is even less popular than SCPH. Hedge funds dodged a bullet by taking a bearish stance towards OCX. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OCX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); OCX investors were disappointed as the stock returned -16.2% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.