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Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 4 percentage points through September 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Veracyte Inc (NASDAQ:VCYT) has seen an increase in support from the world's most elite money managers of late. Our calculations also showed that VCYT 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 analyze the recent hedge fund action regarding Veracyte Inc (NASDAQ:VCYT).
How have hedgies been trading Veracyte Inc (NASDAQ:VCYT)?
At Q2's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VCYT over the last 16 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Veracyte Inc (NASDAQ:VCYT) was held by Millennium Management, which reported holding $15.8 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $15 million position. Other investors bullish on the company included Cannell Capital, AQR Capital Management, and Two Sigma Advisors.
As one would reasonably expect, key money managers have been driving this bullishness. Farallon Capital, managed by Thomas Steyer, initiated the most valuable position in Veracyte Inc (NASDAQ:VCYT). Farallon Capital had $10 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also made a $6 million investment in the stock during the quarter. The other funds with new positions in the stock are Brad Farber's Atika Capital, Joel Greenblatt's Gotham Asset Management, and Minhua Zhang's Weld Capital Management.
Let's check out hedge fund activity in other stocks similar to Veracyte Inc (NASDAQ:VCYT). These stocks are Carbon Black, Inc. (NASDAQ:CBLK), Twin River Worldwide Holdings Inc. (NYSE:TRWH), Brookline Bancorp, Inc. (NASDAQ:BRKL), and OFG Bancorp (NYSE:OFG). This group of stocks' market caps match VCYT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBLK,17,109220,-2 TRWH,14,255799,4 BRKL,8,51964,-1 OFG,18,84829,-2 Average,14.25,125453,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $145 million in VCYT's case. OFG Bancorp (NYSE:OFG) is the most popular stock in this table. On the other hand Brookline Bancorp, Inc. (NASDAQ:BRKL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Veracyte Inc (NASDAQ:VCYT) is more popular among hedge funds. 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 VCYT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VCYT were disappointed as the stock returned -15.8% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
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