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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Global Blood Therapeutics Inc (NASDAQ:GBT) and determine whether hedge funds skillfully traded this stock.
Global Blood Therapeutics Inc (NASDAQ:GBT) was in 31 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. GBT has seen an increase in hedge fund sentiment recently. There were 23 hedge funds in our database with GBT positions at the end of the first quarter. Our calculations also showed that GBT 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.
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 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 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.
Donald Sussman of Paloma Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we're going to take a glance at the recent hedge fund action regarding Global Blood Therapeutics Inc (NASDAQ:GBT).
What have hedge funds been doing with Global Blood Therapeutics Inc (NASDAQ:GBT)?
At Q2's end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in GBT a year ago. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Perceptive Advisors, managed by Joseph Edelman, holds the largest position in Global Blood Therapeutics Inc (NASDAQ:GBT). Perceptive Advisors has a $368.8 million position in the stock, comprising 6% of its 13F portfolio. On Perceptive Advisors's heels is Jeffrey Jay and David Kroin of Great Point Partners, with a $34.2 million position; 2.7% of its 13F portfolio is allocated to the stock. Other members of the smart money that hold long positions include Israel Englander's Millennium Management, Eli Casdin's Casdin Capital and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Perceptive Advisors allocated the biggest weight to Global Blood Therapeutics Inc (NASDAQ:GBT), around 5.99% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, designating 2.74 percent of its 13F equity portfolio to GBT.
Consequently, key hedge funds were breaking ground themselves. Great Point Partners, managed by Jeffrey Jay and David Kroin, assembled the largest position in Global Blood Therapeutics Inc (NASDAQ:GBT). Great Point Partners had $34.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $14 million position during the quarter. The other funds with new positions in the stock are Brian Ashford-Russell and Tim Woolley's Polar Capital, Donald Sussman's Paloma Partners, and Isaac Corre's Governors Lane.
Let's also examine hedge fund activity in other stocks similar to Global Blood Therapeutics Inc (NASDAQ:GBT). We will take a look at Cyberark Software Ltd (NASDAQ:CYBR), ICU Medical, Inc. (NASDAQ:ICUI), Wright Medical Group N.V. (NASDAQ:WMGI), Lattice Semiconductor Corporation (NASDAQ:LSCC), Armstrong World Industries, Inc. (NYSE:AWI), Western Alliance Bancorporation (NYSE:WAL), and GW Pharmaceuticals plc (NASDAQ:GWPH). This group of stocks' market values match GBT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CYBR,17,187436,3 ICUI,32,304412,7 WMGI,38,799962,1 LSCC,19,162880,-7 AWI,34,372376,14 WAL,24,139929,-3 GWPH,18,350605,-3 Average,26,331086,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $331 million. That figure was $600 million in GBT's case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Cyberark Software Ltd (NASDAQ:CYBR) is the least popular one with only 17 bullish hedge fund positions. Global Blood Therapeutics Inc (NASDAQ:GBT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GBT is 73.3. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately GBT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on GBT were disappointed as the stock returned -11% during the same time period 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.