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The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Verastem Inc (NASDAQ:VSTM).
Is Verastem Inc (NASDAQ:VSTM) undervalued? Money managers are getting less optimistic. The number of bullish hedge fund positions retreated by 1 recently. Our calculations also showed that VSTM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). VSTM was in 8 hedge funds' portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with VSTM holdings 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.
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David E. Shaw of D.E. Shaw[/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 take a glance at the key hedge fund action surrounding Verastem Inc (NASDAQ:VSTM).
What does smart money think about Verastem Inc (NASDAQ:VSTM)?
At Q3's end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VSTM over the last 17 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Biotechnology Value Fund was the largest shareholder of Verastem Inc (NASDAQ:VSTM), with a stake worth $7.7 million reported as of the end of September. Trailing Biotechnology Value Fund was D E Shaw, which amassed a stake valued at $0.2 million. Winton Capital Management, Citadel Investment Group, and Millennium Management 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 Verastem Inc (NASDAQ:VSTM), around 0.8% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, dishing out 0.0023 percent of its 13F equity portfolio to VSTM.
Seeing as Verastem Inc (NASDAQ:VSTM) has experienced a decline in interest from hedge fund managers, we can see that there exists a select few money managers who sold off their positions entirely in the third quarter. Intriguingly, Renaissance Technologies dumped the biggest stake of the 750 funds followed by Insider Monkey, comprising close to $1.5 million in stock. Donald Sussman's fund, Paloma Partners, also sold off its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Verastem Inc (NASDAQ:VSTM). We will take a look at Emclaire Financial Corp (NASDAQ:EMCF), RTW Retailwinds, Inc. (NASDAQ:RTW), Brainstorm Cell Therapeutics Inc. (NASDAQ:BCLI), and vTv Therapeutics Inc (NASDAQ:VTVT). This group of stocks' market values match VSTM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EMCF,2,775,0 RTW,7,4105,1 BCLI,2,1452,-1 VTVT,2,62,0 Average,3.25,1599,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $8 million in VSTM's case. RTW Retailwinds, Inc. (NASDAQ:RTW) is the most popular stock in this table. On the other hand Emclaire Financial Corp (NASDAQ:EMCF) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Verastem Inc (NASDAQ:VSTM) 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 VSTM as the stock returned 13.2% 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.