Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves.
Prevail Therapeutics Inc. (NASDAQ:PRVL) was in 11 hedge funds' portfolios at the end of June. PRVL investors should pay attention to an increase in hedge fund sentiment recently. There were 0 hedge funds in our database with PRVL positions at the end of the previous quarter. Our calculations also showed that PRVL 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.
To most traders, hedge funds are perceived as worthless, outdated financial vehicles of the past. While there are more than 8000 funds in operation at present, We choose to focus on the bigwigs of this group, approximately 750 funds. These money managers command the majority of the hedge fund industry's total capital, and by tracking their highest performing picks, Insider Monkey has come up with a few investment strategies that have historically defeated Mr. Market. Insider Monkey's flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
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 gander at the recent hedge fund action regarding Prevail Therapeutics Inc. (NASDAQ:PRVL).
What does smart money think about Prevail Therapeutics Inc. (NASDAQ:PRVL)?
At Q2's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11 from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in PRVL a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, OrbiMed Advisors, managed by Samuel Isaly, holds the most valuable position in Prevail Therapeutics Inc. (NASDAQ:PRVL). OrbiMed Advisors has a $182.5 million position in the stock, comprising 2.8% of its 13F portfolio. The second most bullish fund manager is RA Capital Management, led by Peter Kolchinsky, holding a $36.2 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Other peers that hold long positions include Oleg Nodelman's EcoR1 Capital, Ken Griffin's Citadel Investment Group and Mark Lampert's Biotechnology Value Fund / BVF Inc.
As aggregate interest increased, key hedge funds have jumped into Prevail Therapeutics Inc. (NASDAQ:PRVL) headfirst. OrbiMed Advisors, managed by Samuel Isaly, assembled the most valuable position in Prevail Therapeutics Inc. (NASDAQ:PRVL). OrbiMed Advisors had $182.5 million invested in the company at the end of the quarter. Peter Kolchinsky's RA Capital Management also made a $36.2 million investment in the stock during the quarter. The other funds with brand new PRVL positions are Oleg Nodelman's EcoR1 Capital, Ken Griffin's Citadel Investment Group, and Mark Lampert's Biotechnology Value Fund / BVF Inc.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Prevail Therapeutics Inc. (NASDAQ:PRVL) but similarly valued. These stocks are 111, Inc. (NASDAQ:YI), Golden Star Resources Ltd. (NYSE:GSS), Old Line Bancshares, Inc. (NASDAQ:OLBK), and Collegium Pharmaceutical Inc (NASDAQ:COLL). This group of stocks' market caps are closest to PRVL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YI,3,12658,0 GSS,6,11740,3 OLBK,5,35365,-4 COLL,16,70836,-4 Average,7.5,32650,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $293 million in PRVL's case. Collegium Pharmaceutical Inc (NASDAQ:COLL) is the most popular stock in this table. On the other hand 111, Inc. (NASDAQ:YI) is the least popular one with only 3 bullish hedge fund positions. Prevail Therapeutics Inc. (NASDAQ:PRVL) 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 PRVL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PRVL were disappointed as the stock returned -7% 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.