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Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is Fulcrum Therapeutics, Inc. (NASDAQ:FULC) ready to rally soon? Investors who are in the know are betting on the stock. The number of bullish hedge fund bets inched up by 7 in recent months. Our calculations also showed that FULC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FULC was in 7 hedge funds' portfolios at the end of September. There were 0 hedge funds in our database with FULC positions at the end of the previous quarter.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Israel Englander of Millennium Management[/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. Let's take a peek at the new hedge fund action encompassing Fulcrum Therapeutics, Inc. (NASDAQ:FULC).
Hedge fund activity in Fulcrum Therapeutics, Inc. (NASDAQ:FULC)
At Q3's end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7 from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in FULC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Casdin Capital was the largest shareholder of Fulcrum Therapeutics, Inc. (NASDAQ:FULC), with a stake worth $5.3 million reported as of the end of September. Trailing Casdin Capital was Perceptive Advisors, which amassed a stake valued at $4 million. Harvard Management Co, Millennium Management, and Alyeska Investment Group 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 Fulcrum Therapeutics, Inc. (NASDAQ:FULC), around 0.53% of its 13F portfolio. Harvard Management Co is also relatively very bullish on the stock, setting aside 0.25 percent of its 13F equity portfolio to FULC.
As industrywide interest jumped, specific money managers were leading the bulls' herd. Casdin Capital, managed by Eli Casdin, initiated the most outsized position in Fulcrum Therapeutics, Inc. (NASDAQ:FULC). Casdin Capital had $5.3 million invested in the company at the end of the quarter. Joseph Edelman's Perceptive Advisors also initiated a $4 million position during the quarter. The other funds with brand new FULC positions are Harvard Management Co, Israel Englander's Millennium Management, and Anand Parekh's Alyeska Investment Group.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Fulcrum Therapeutics, Inc. (NASDAQ:FULC) but similarly valued. We will take a look at Kura Sushi USA, Inc. (NASDAQ:KRUS), China Online Education Group (NYSE:COE), Quarterhill Inc. (NASDAQ:QTRH), and Neuronetics, Inc. (NASDAQ:STIM). This group of stocks' market values resemble FULC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KRUS,4,14698,4 COE,4,5109,0 QTRH,3,3762,0 STIM,6,4361,1 Average,4.25,6983,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $16 million in FULC's case. Neuronetics, Inc. (NASDAQ:STIM) is the most popular stock in this table. On the other hand Quarterhill Inc. (NASDAQ:QTRH) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Fulcrum Therapeutics, Inc. (NASDAQ:FULC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on FULC as the stock returned 86% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.