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 (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Editas Medicine, Inc. (NASDAQ:EDIT) investors should pay attention to an increase in enthusiasm from smart money recently. Editas Medicine, Inc. (NASDAQ:EDIT) was in 22 hedge funds' portfolios at the end of June. The all time high for this statistics is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 16 hedge funds in our database with EDIT positions at the end of the first quarter. Our calculations also showed that EDIT isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
James E. Flynn of Deerfield Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a look at the fresh hedge fund action regarding Editas Medicine, Inc. (NASDAQ:EDIT).
What have hedge funds been doing with Editas Medicine, Inc. (NASDAQ:EDIT)?
At second quarter's end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the first quarter of 2020. On the other hand, there were a total of 14 hedge funds with a bullish position in EDIT a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Editas Medicine, Inc. (NASDAQ:EDIT), which was worth $37.8 million at the end of the third quarter. On the second spot was Deerfield Management which amassed $34.3 million worth of shares. Two Sigma Advisors, Viking Global, and Renaissance Technologies 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 Pinz Capital allocated the biggest weight to Editas Medicine, Inc. (NASDAQ:EDIT), around 1.13% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, dishing out 1 percent of its 13F equity portfolio to EDIT.
As industrywide interest jumped, key money managers have jumped into Editas Medicine, Inc. (NASDAQ:EDIT) headfirst. Pinz Capital, managed by Matthew L Pinz, assembled the most outsized position in Editas Medicine, Inc. (NASDAQ:EDIT). Pinz Capital had $2.5 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also made a $1.1 million investment in the stock during the quarter. The other funds with brand new EDIT positions are Michael Gelband's ExodusPoint Capital, Alec Litowitz and Ross Laser's Magnetar Capital, and Minhua Zhang's Weld Capital Management.
Let's check out 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 Medifast, Inc. (NYSE:MED), Six Flags Entertainment Corp (NYSE:SIX), Epizyme Inc (NASDAQ:EPZM), Eldorado Gold Corp (NYSE:EGO), Sogou Inc. (NYSE:SOGO), JELD-WEN Holding, Inc. (NYSE:JELD), and CNX Resources Corporation (NYSE:CNX). This group of stocks' market values are similar to EDIT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MED,18,441390,2 SIX,33,494437,3 EPZM,23,317359,1 EGO,12,224197,-2 SOGO,5,15881,-1 JELD,15,193669,-5 CNX,28,495530,4 Average,19.1,311780,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $312 million. That figure was $127 million in EDIT's case. Six Flags Entertainment Corp (NYSE:SIX) is the most popular stock in this table. On the other hand Sogou Inc. (NYSE:SOGO) is the least popular one with only 5 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 overall hedge fund sentiment score for EDIT is 70.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately EDIT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on EDIT were disappointed as the stock returned -5.1% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.