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 Arbutus Biopharma Corp (NASDAQ:ABUS)? The smart money sentiment can provide an answer to this question.
Arbutus Biopharma Corp (NASDAQ:ABUS) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of March. At the end of this article we will also compare ABUS to other stocks including FedNat Holding Company (NASDAQ:FNHC), Jounce Therapeutics, Inc. (NASDAQ:JNCE), and Ardmore Shipping Corp (NYSE:ASC) to get a better sense of its popularity.
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 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.
We're going to take a gander at the new hedge fund action regarding Arbutus Biopharma Corp (NASDAQ:ABUS).
Hedge fund activity in Arbutus Biopharma Corp (NASDAQ:ABUS)
Heading into the second quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2018. By comparison, 8 hedge funds held shares or bullish call options in ABUS a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, EcoR1 Capital, managed by Oleg Nodelman, holds the most valuable position in Arbutus Biopharma Corp (NASDAQ:ABUS). EcoR1 Capital has a $7.8 million position in the stock, comprising 0.7% of its 13F portfolio. On EcoR1 Capital's heels is Hudson Bay Capital Management, managed by Sander Gerber, which holds a $2.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish consist of Nathan Fischel's DAFNA Capital Management, Thomas Bailard's Bailard Inc and D. E. Shaw's D E Shaw.
Since Arbutus Biopharma Corp (NASDAQ:ABUS) has experienced declining sentiment from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedge funds that elected to cut their positions entirely last quarter. Intriguingly, Ken Griffin's Citadel Investment Group said goodbye to the largest stake of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $0.1 million in stock. Andrew Weiss's fund, Weiss Asset Management, also dumped its stock, about $0 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Arbutus Biopharma Corp (NASDAQ:ABUS). We will take a look at FedNat Holding Company (NASDAQ:FNHC), Jounce Therapeutics, Inc. (NASDAQ:JNCE), Ardmore Shipping Corp (NYSE:ASC), and Lifevantage Corporation (NASDAQ:LFVN). This group of stocks' market caps match ABUS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FNHC,9,29997,1 JNCE,10,7393,2 ASC,9,20991,-1 LFVN,11,23500,0 Average,9.75,20470,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $12 million in ABUS's case. Lifevantage Corporation (NASDAQ:LFVN) is the most popular stock in this table. On the other hand FedNat Holding Company (NASDAQ:FNHC) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Arbutus Biopharma Corp (NASDAQ:ABUS) is even less popular than FNHC. Hedge funds dodged a bullet by taking a bearish stance towards ABUS. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ABUS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ABUS investors were disappointed as the stock returned -52% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.