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 Cytokinetics, Incorporated (NASDAQ:CYTK).
Cytokinetics, Incorporated (NASDAQ:CYTK) investors should be aware of a decrease in hedge fund sentiment lately. CYTK was in 14 hedge funds' portfolios at the end of June. There were 16 hedge funds in our database with CYTK holdings at the end of the previous quarter. Our calculations also showed that CYTK 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.
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 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 take a look at the new hedge fund action encompassing Cytokinetics, Incorporated (NASDAQ:CYTK).
What have hedge funds been doing with Cytokinetics, Incorporated (NASDAQ:CYTK)?
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CYTK over the last 16 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Biotechnology Value Fund / BVF Inc was the largest shareholder of Cytokinetics, Incorporated (NASDAQ:CYTK), with a stake worth $58.2 million reported as of the end of March. Trailing Biotechnology Value Fund / BVF Inc was Driehaus Capital, which amassed a stake valued at $24.6 million. Millennium Management, Opaleye Management, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Cytokinetics, Incorporated (NASDAQ:CYTK) has experienced bearish sentiment from hedge fund managers, we can see that there were a few hedgies who sold off their entire stakes by the end of the second quarter. Intriguingly, Alex Snow's Lansdowne Partners dumped the largest position of the 750 funds monitored by Insider Monkey, worth an estimated $11.8 million in stock. Jeffrey Talpins's fund, Element Capital Management, also cut its stock, about $0.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks similar to Cytokinetics, Incorporated (NASDAQ:CYTK). These stocks are Kimball International Inc (NASDAQ:KBAL), Dorchester Minerals LP (NASDAQ:DMLP), The Manitowoc Company, Inc. (NYSE:MTW), and Luther Burbank Corporation (NASDAQ:LBC). All of these stocks' market caps resemble CYTK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KBAL,13,108992,1 DMLP,7,40466,1 MTW,13,110489,-7 LBC,7,9917,1 Average,10,67466,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $138 million in CYTK's case. Kimball International Inc (NASDAQ:KBAL) is the most popular stock in this table. On the other hand Dorchester Minerals LP (NASDAQ:DMLP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Cytokinetics, Incorporated (NASDAQ:CYTK) 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 CYTK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CYTK were disappointed as the stock returned 1.2% 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.