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 Virgin Galactic Holdings, Inc. (NYSE:SPCE) and determine whether hedge funds skillfully traded this stock.
Virgin Galactic Holdings, Inc. (NYSE:SPCE) has seen a decrease in enthusiasm from smart money of late. Our calculations also showed that SPCE isn't among the 30 most popular stocks among hedge funds (click for Q1 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_670377" align="aligncenter" width="396"] Aaron Cowen of Suvretta Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's analyze the recent hedge fund action surrounding Virgin Galactic Holdings, Inc. (NYSE:SPCE).
What does smart money think about Virgin Galactic Holdings, Inc. (NYSE:SPCE)?
At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -63% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPCE over the last 18 quarters. So, let's check out 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, Ken Griffin's Citadel Investment Group has the largest call position in Virgin Galactic Holdings, Inc. (NYSE:SPCE), worth close to $29.9 million, accounting for less than 0.1%% of its total 13F portfolio. On Citadel Investment Group's heels is Suvretta Capital Management, led by Aaron Cowen, holding a $18.9 million position; 0.5% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions comprise Renaissance Technologies, Aaron Cowen's Suvretta Capital Management and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Appian Way Asset Management allocated the biggest weight to Virgin Galactic Holdings, Inc. (NYSE:SPCE), around 0.6% of its 13F portfolio. Suvretta Capital Management is also relatively very bullish on the stock, earmarking 0.51 percent of its 13F equity portfolio to SPCE.
Seeing as Virgin Galactic Holdings, Inc. (NYSE:SPCE) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedge funds that elected to cut their positions entirely last quarter. Intriguingly, Robert Pohly's Samlyn Capital said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, totaling about $48.4 million in stock. Guy Shahar's fund, DSAM Partners, also sold off its stock, about $29.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 20 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Virgin Galactic Holdings, Inc. (NYSE:SPCE) but similarly valued. These stocks are Hess Midstream LP (NYSE:HESM), Immunomedics, Inc. (NASDAQ:IMMU), Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), and Millicom International Cellular S.A. (NASDAQ:TIGO). This group of stocks' market caps are closest to SPCE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HESM,5,5430,-4 IMMU,27,701345,-1 PNFP,13,32487,-3 TIGO,7,52524,0 Average,13,197947,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $55 million in SPCE's case. Immunomedics, Inc. (NASDAQ:IMMU) is the most popular stock in this table. On the other hand Hess Midstream LP (NYSE:HESM) is the least popular one with only 5 bullish hedge fund positions. Virgin Galactic Holdings, Inc. (NYSE:SPCE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately SPCE wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SPCE investors were disappointed as the stock returned 10.6% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.