Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Global Blood Therapeutics Inc (NASDAQ:GBT).
Global Blood Therapeutics Inc (NASDAQ:GBT) investors should pay attention to an increase in support from the world's most elite money managers lately. GBT was in 30 hedge funds' portfolios at the end of the second quarter of 2019. There were 26 hedge funds in our database with GBT holdings at the end of the previous quarter. Our calculations also showed that GBT isn't among the 30 most popular stocks among hedge funds (view 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.
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 look at the recent hedge fund action regarding Global Blood Therapeutics Inc (NASDAQ:GBT).
How are hedge funds trading Global Blood Therapeutics Inc (NASDAQ:GBT)?
Heading into the third quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in GBT a year ago. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Perceptive Advisors was the largest shareholder of Global Blood Therapeutics Inc (NASDAQ:GBT), with a stake worth $303.8 million reported as of the end of March. Trailing Perceptive Advisors was Farallon Capital, which amassed a stake valued at $59.2 million. venBio Select Advisor, Luminus Management, and Broadfin Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, specific money managers were leading the bulls' herd. Luminus Management, managed by Jonathan Barrett and Paul Segal, created the biggest position in Global Blood Therapeutics Inc (NASDAQ:GBT). Luminus Management had $20.4 million invested in the company at the end of the quarter. James E. Flynn's Deerfield Management also made a $12.4 million investment in the stock during the quarter. The following funds were also among the new GBT investors: Israel Englander's Millennium Management, Simon Sadler's Segantii Capital, and Jonathan Auerbach's Hound Partners.
Let's now take a look at hedge fund activity in other stocks similar to Global Blood Therapeutics Inc (NASDAQ:GBT). We will take a look at Navient Corporation (NASDAQ:NAVI), Gates Industrial Corporation plc (NYSE:GTES), Allogene Therapeutics, Inc. (NASDAQ:ALLO), and Clearway Energy, Inc. (NYSE:CWEN). All of these stocks' market caps are similar to GBT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NAVI,26,490383,-5 GTES,13,16531,4 ALLO,8,106337,0 CWEN,19,152318,-8 Average,16.5,191392,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $584 million in GBT's case. Navient Corporation (NASDAQ:NAVI) is the most popular stock in this table. On the other hand Allogene Therapeutics, Inc. (NASDAQ:ALLO) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Global Blood Therapeutics Inc (NASDAQ:GBT) 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 GBT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GBT were disappointed as the stock returned -7.8% 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.