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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Denali Therapeutics Inc. (NASDAQ:DNLI) based on that data.
Denali Therapeutics Inc. (NASDAQ:DNLI) investors should be aware of an increase in hedge fund interest of late. Our calculations also showed that DNLI 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 let's view the recent hedge fund action encompassing Denali Therapeutics Inc. (NASDAQ:DNLI).
How have hedgies been trading Denali Therapeutics Inc. (NASDAQ:DNLI)?
Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 56% from the fourth quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in DNLI a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Casdin Capital was the largest shareholder of Denali Therapeutics Inc. (NASDAQ:DNLI), with a stake worth $25.5 million reported as of the end of September. Trailing Casdin Capital was Perceptive Advisors, which amassed a stake valued at $14.9 million. EcoR1 Capital, Marshall Wace LLP, and Mark Asset 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 Casdin Capital allocated the biggest weight to Denali Therapeutics Inc. (NASDAQ:DNLI), around 2.7% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, earmarking 1.28 percent of its 13F equity portfolio to DNLI.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Perceptive Advisors, managed by Joseph Edelman, assembled the most outsized position in Denali Therapeutics Inc. (NASDAQ:DNLI). Perceptive Advisors had $14.9 million invested in the company at the end of the quarter. Oleg Nodelman's EcoR1 Capital also made a $12.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Julian Baker and Felix Baker's Baker Bros. Advisors, Panayotis Takis Sparaggis's Alkeon Capital Management, and Bhagwan Jay Rao's Integral Health Asset Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Denali Therapeutics Inc. (NASDAQ:DNLI) but similarly valued. These stocks are Cathay General Bancorp (NASDAQ:CATY), AllianceBernstein Holding LP (NYSE:AB), Fastly, Inc. (NYSE:FSLY), and Companhia Siderurgica Nacional (NYSE:SID). This group of stocks' market valuations resemble DNLI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CATY,15,21855,1 AB,7,19810,-4 FSLY,22,276560,3 SID,5,3203,-1 Average,12.25,80357,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $71 million in DNLI's case. Fastly, Inc. (NYSE:FSLY) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 5 bullish hedge fund positions. Denali Therapeutics Inc. (NASDAQ:DNLI) 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 DNLI as the stock returned 46.8% 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.