Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Fate Therapeutics Inc (NASDAQ:FATE)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in Fate Therapeutics Inc (NASDAQ:FATE) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare FATE to other stocks including Rambus Inc. (NASDAQ:RMBS), Vector Group Ltd (NYSE:VGR), and Hercules Capital, Inc. (NYSE:HTGC) to get a better sense of its popularity. Our calculations also showed that FATE 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.
Why do we pay any attention at all to hedge fund sentiment? 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 view the fresh hedge fund action surrounding Fate Therapeutics Inc (NASDAQ:FATE).
How are hedge funds trading Fate Therapeutics Inc (NASDAQ:FATE)?
Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FATE over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
[caption id="attachment_758434" align="aligncenter" width="450"] Nathan Fischel of DAFNA Capital[/caption]
More specifically, Redmile Group was the largest shareholder of Fate Therapeutics Inc (NASDAQ:FATE), with a stake worth $210.3 million reported as of the end of March. Trailing Redmile Group was Casdin Capital, which amassed a stake valued at $51.8 million. Farallon Capital, Millennium Management, and Deerfield Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Fate Therapeutics Inc (NASDAQ:FATE) has witnessed falling interest from hedge fund managers, logic holds that there were a few fund managers that elected to cut their positions entirely last quarter. It's worth mentioning that Ken Griffin's Citadel Investment Group dropped the largest stake of all the hedgies monitored by Insider Monkey, worth about $15.3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $0.3 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Fate Therapeutics Inc (NASDAQ:FATE) but similarly valued. These stocks are Rambus Inc. (NASDAQ:RMBS), Vector Group Ltd (NYSE:VGR), Hercules Capital, Inc. (NYSE:HTGC), and WW International, Inc. (NASDAQ:WW). This group of stocks' market values resemble FATE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RMBS,16,147460,-1 VGR,18,134559,-4 HTGC,12,25334,2 WW,21,286332,1 Average,16.75,148421,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $470 million in FATE's case. WW International, Inc. (NASDAQ:WW) is the most popular stock in this table. On the other hand Hercules Capital, Inc. (NYSE:HTGC) is the least popular one with only 12 bullish hedge fund positions. Fate Therapeutics Inc (NASDAQ:FATE) 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 FATE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FATE were disappointed as the stock returned -23.5% 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.