We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Dynavax Technologies Corporation (NASDAQ:DVAX).
Dynavax Technologies Corporation (NASDAQ:DVAX) was in 12 hedge funds' portfolios at the end of the second quarter of 2019. DVAX investors should be aware of a decrease in support from the world's most elite money managers in recent months. There were 16 hedge funds in our database with DVAX positions at the end of the previous quarter. Our calculations also showed that DVAX 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to take a look at the key hedge fund action encompassing Dynavax Technologies Corporation (NASDAQ:DVAX).
What have hedge funds been doing with Dynavax Technologies Corporation (NASDAQ:DVAX)?
At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in DVAX a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Rima Senvest Management was the largest shareholder of Dynavax Technologies Corporation (NASDAQ:DVAX), with a stake worth $15.8 million reported as of the end of March. Trailing Rima Senvest Management was Millennium Management, which amassed a stake valued at $8.9 million. D E Shaw, Citadel Investment Group, and Rock Springs Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Dynavax Technologies Corporation (NASDAQ:DVAX) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of money managers who were dropping their entire stakes last quarter. At the top of the heap, Bain Capital's Brookside Capital dumped the biggest stake of the 750 funds monitored by Insider Monkey, worth about $9.2 million in stock, and Thomas Steyer's Farallon Capital was right behind this move, as the fund dumped about $3.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Dynavax Technologies Corporation (NASDAQ:DVAX) but similarly valued. We will take a look at Hamilton Beach Brands Holding Company (NYSE:HBB), Intelligent Systems Corporation (NYSE:INS), Aerohive Networks Inc (NYSE:HIVE), and Pure Cycle Corporation (NASDAQ:PCYO). This group of stocks' market caps resemble DVAX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HBB,1,1541,-2 INS,7,70269,2 HIVE,16,75066,2 PCYO,7,88398,1 Average,7.75,58819,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $43 million in DVAX's case. Aerohive Networks Inc (NYSE:HIVE) is the most popular stock in this table. On the other hand Hamilton Beach Brands Holding Company (NYSE:HBB) is the least popular one with only 1 bullish hedge fund positions. Dynavax Technologies Corporation (NASDAQ:DVAX) 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 DVAX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DVAX were disappointed as the stock returned -10.3% 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.