"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards InVitae Corporation (NYSE:NVTA) and see how it was affected.
InVitae Corporation (NYSE:NVTA) has seen a decrease in activity from the world's largest hedge funds recently. Our calculations also showed that NVTA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_338175" align="alignnone" width="2480"] Felix Baker of Baker Bros.[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to check out the latest hedge fund action surrounding InVitae Corporation (NYSE:NVTA).
Hedge fund activity in InVitae Corporation (NYSE:NVTA)
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NVTA over the last 17 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.
Among these funds, Baker Bros. Advisors held the most valuable stake in InVitae Corporation (NYSE:NVTA), which was worth $169.4 million at the end of the third quarter. On the second spot was Casdin Capital which amassed $74 million worth of shares. Farallon Capital, Perceptive Advisors, and Rock Springs Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to InVitae Corporation (NYSE:NVTA), around 7.4% of its 13F portfolio. Baker Bros. Advisors is also relatively very bullish on the stock, dishing out 1.15 percent of its 13F equity portfolio to NVTA.
Since InVitae Corporation (NYSE:NVTA) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there were a few hedgies who were dropping their positions entirely in the third quarter. Interestingly, James E. Flynn's Deerfield Management dropped the largest stake of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $23.4 million in stock, and Jeremy Green's Redmile Group was right behind this move, as the fund dropped about $8.8 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to InVitae Corporation (NYSE:NVTA). These stocks are Premier Inc (NASDAQ:PINC), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), Callaway Golf Company (NYSE:ELY), and Portola Pharmaceuticals Inc (NASDAQ:PTLA). This group of stocks' market values are closest to NVTA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PINC,17,166922,1 MDRX,19,184930,1 ELY,19,287822,-1 PTLA,20,293177,2 Average,18.75,233213,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $325 million in NVTA's case. Portola Pharmaceuticals Inc (NASDAQ:PTLA) is the most popular stock in this table. On the other hand Premier Inc (NASDAQ:PINC) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks InVitae Corporation (NYSE:NVTA) is even less popular than PINC. Hedge funds dodged a bullet by taking a bearish stance towards NVTA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NVTA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NVTA investors were disappointed as the stock returned 3.3% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.