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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 Allogene Therapeutics, Inc. (NASDAQ:ALLO) and determine whether hedge funds skillfully traded this stock.
Allogene Therapeutics, Inc. (NASDAQ:ALLO) was in 24 hedge funds' portfolios at the end of June. The all time high for this statistics is 12. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ALLO has experienced an increase in hedge fund sentiment lately. There were 12 hedge funds in our database with ALLO holdings at the end of March. Our calculations also showed that ALLO isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Daniel Sundheim of D1 Capital Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let's take a gander at the latest hedge fund action encompassing Allogene Therapeutics, Inc. (NASDAQ:ALLO).
How have hedgies been trading Allogene Therapeutics, Inc. (NASDAQ:ALLO)?
At the end of June, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ALLO over the last 20 quarters. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Perceptive Advisors, managed by Joseph Edelman, holds the biggest position in Allogene Therapeutics, Inc. (NASDAQ:ALLO). Perceptive Advisors has a $66.1 million position in the stock, comprising 1.1% of its 13F portfolio. On Perceptive Advisors's heels is Leonard A. Potter of Wildcat Capital Management, with a $64.9 million position; 22.4% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions comprise Behzad Aghazadeh's Avoro Capital Advisors (venBio Select Advisor), Lei Zhang's Hillhouse Capital Management and Eli Casdin's Casdin Capital. In terms of the portfolio weights assigned to each position Wildcat Capital Management allocated the biggest weight to Allogene Therapeutics, Inc. (NASDAQ:ALLO), around 22.42% of its 13F portfolio. DSAM Partners is also relatively very bullish on the stock, earmarking 3.03 percent of its 13F equity portfolio to ALLO.
As industrywide interest jumped, some big names have jumped into Allogene Therapeutics, Inc. (NASDAQ:ALLO) headfirst. Hillhouse Capital Management, managed by Lei Zhang, established the largest position in Allogene Therapeutics, Inc. (NASDAQ:ALLO). Hillhouse Capital Management had $34.3 million invested in the company at the end of the quarter. Daniel Sundheim's D1 Capital Partners also initiated a $21.4 million position during the quarter. The following funds were also among the new ALLO investors: Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Michael Rockefeller and KarláKroeker's Woodline Partners, and Paul Tudor Jones's Tudor Investment Corp.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Allogene Therapeutics, Inc. (NASDAQ:ALLO) but similarly valued. These stocks are Globant SA (NYSE:GLOB), Huaneng Power International Inc (NYSE:HNP), AMERCO (NASDAQ:UHAL), B2Gold Corp (NYSE:BTG), GFL Environmental Inc. (NYSE:GFL), Floor & Decor Holdings, Inc. (NYSE:FND), and Voya Financial Inc (NYSE:VOYA). All of these stocks' market caps are closest to ALLO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLOB,17,235992,0 HNP,2,2391,-1 UHAL,20,327924,5 BTG,18,500334,-1 GFL,16,207198,6 FND,44,817503,21 VOYA,41,791893,9 Average,22.6,411891,5.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $412 million. That figure was $330 million in ALLO's case. Floor & Decor Holdings, Inc. (NYSE:FND) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 2 bullish hedge fund positions. Allogene Therapeutics, Inc. (NASDAQ:ALLO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALLO is 66.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately ALLO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ALLO were disappointed as the stock returned -13.5% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.