You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX) was in 10 hedge funds' portfolios at the end of the second quarter of 2019. CRNX shareholders have witnessed an increase in activity from the world's largest hedge funds in recent months. There were 9 hedge funds in our database with CRNX holdings at the end of the previous quarter. Our calculations also showed that CRNX isn't among the 30 most popular stocks among hedge funds (see the video below). 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the fresh hedge fund action encompassing Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX).
Hedge fund activity in Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX)
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CRNX over the last 16 quarters. So, let's find 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, Albert Cha and Frank Kung's Vivo Capital has the biggest position in Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX), worth close to $84.4 million, accounting for 7.9% of its total 13F portfolio. On Vivo Capital's heels is Perceptive Advisors, managed by Joseph Edelman, which holds a $64.7 million position; 1.5% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism contain Samuel Isaly's OrbiMed Advisors, Peter Kolchinsky's RA Capital Management and Phill Gross and Robert Atchinson's Adage Capital Management.
Consequently, specific money managers have been driving this bullishness. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, assembled the most outsized position in Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX). Polar Capital had $2.5 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $0.3 million investment in the stock during the quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX) but similarly valued. We will take a look at Translate Bio, Inc. (NASDAQ:TBIO), Cresud Sociedad Anonima Comercial, Inmobiliaria, Financiera y Agropecuaria (CRESY) (NASDAQ:CRESY), Nicolet Bankshares Inc. (NASDAQ:NCBS), and ORBCOMM Inc (NASDAQ:ORBC). This group of stocks' market valuations resemble CRNX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TBIO,10,156077,3 CRESY,7,22661,0 NCBS,4,5945,1 ORBC,13,87233,-3 Average,8.5,67979,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $267 million in CRNX's case. ORBCOMM Inc (NASDAQ:ORBC) is the most popular stock in this table. On the other hand Nicolet Bankshares Inc. (NASDAQ:NCBS) is the least popular one with only 4 bullish hedge fund positions. Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CRNX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CRNX were disappointed as the stock returned -39.8% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.