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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Editas Medicine, Inc. (NASDAQ:EDIT).
Is Editas Medicine, Inc. (NASDAQ:EDIT) a safe stock to buy now? Money managers are getting more optimistic. The number of bullish hedge fund positions improved by 2 recently. Our calculations also showed that EDIT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by more than 58 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. 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.
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Fred DiSanto of Ancora Advisors[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a glance at the latest hedge fund action regarding Editas Medicine, Inc. (NASDAQ:EDIT).
What does smart money think about Editas Medicine, Inc. (NASDAQ:EDIT)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the fourth quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in EDIT a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Editas Medicine, Inc. (NASDAQ:EDIT) was held by Deerfield Management, which reported holding $23 million worth of stock at the end of September. It was followed by D E Shaw with a $20.7 million position. Other investors bullish on the company included Two Sigma Advisors, Viking Global, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to Editas Medicine, Inc. (NASDAQ:EDIT), around 0.73% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, designating 0.09 percent of its 13F equity portfolio to EDIT.
Now, key hedge funds have jumped into Editas Medicine, Inc. (NASDAQ:EDIT) headfirst. AQR Capital Management, managed by Cliff Asness, assembled the most outsized position in Editas Medicine, Inc. (NASDAQ:EDIT). AQR Capital Management had $0.8 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new EDIT investors: Greg Eisner's Engineers Gate Manager and Frederick DiSanto's Ancora Advisors.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Editas Medicine, Inc. (NASDAQ:EDIT) but similarly valued. We will take a look at Universal Corp (NYSE:UVV), City Holding Company (NASDAQ:CHCO), So-Young International Inc. (NASDAQ:SY), and Super Micro Computer, Inc. (NASDAQ:SMCI). This group of stocks' market caps match EDIT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UVV,9,65327,-5 CHCO,6,18195,-7 SY,6,38355,-1 SMCI,24,432701,22 Average,11.25,138645,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $79 million in EDIT's case. Super Micro Computer, Inc. (NASDAQ:SMCI) is the most popular stock in this table. On the other hand City Holding Company (NASDAQ:CHCO) is the least popular one with only 6 bullish hedge fund positions. Editas Medicine, Inc. (NASDAQ:EDIT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on EDIT as the stock returned 58.4% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.