How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Myriad Genetics, Inc. (NASDAQ:MYGN) and determine whether hedge funds had an edge regarding this stock.
Myriad Genetics, Inc. (NASDAQ:MYGN) investors should be aware of an increase in enthusiasm from smart money lately. Myriad Genetics, Inc. (NASDAQ:MYGN) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 28. Our calculations also showed that MYGN 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Paul Marshall of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. 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. With all of this in mind we're going to view the key hedge fund action surrounding Myriad Genetics, Inc. (NASDAQ:MYGN).
What have hedge funds been doing with Myriad Genetics, Inc. (NASDAQ:MYGN)?
At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 91% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in MYGN a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Camber Capital Management was the largest shareholder of Myriad Genetics, Inc. (NASDAQ:MYGN), with a stake worth $45.4 million reported as of the end of September. Trailing Camber Capital Management was D E Shaw, which amassed a stake valued at $37.3 million. Glenview Capital, Arrowstreet Capital, and Two Sigma Advisors 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 Camber Capital Management allocated the biggest weight to Myriad Genetics, Inc. (NASDAQ:MYGN), around 2.6% of its 13F portfolio. Glenview Capital is also relatively very bullish on the stock, dishing out 0.57 percent of its 13F equity portfolio to MYGN.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Myriad Genetics, Inc. (NASDAQ:MYGN). Arrowstreet Capital had $9.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $2.6 million investment in the stock during the quarter. The following funds were also among the new MYGN investors: Greg Eisner's Engineers Gate Manager, Dmitry Balyasny's Balyasny Asset Management, and Paul Tudor Jones's Tudor Investment Corp.
Let's check out hedge fund activity in other stocks similar to Myriad Genetics, Inc. (NASDAQ:MYGN). These stocks are Calix Inc (NYSE:CALX), QAD Inc. (NASDAQ:QADA), BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), Vista Outdoor Inc (NYSE:VSTO), Accelerate Diagnostics Inc (NASDAQ:AXDX), Autolus Therapeutics plc (NASDAQ:AUTL), and Amyris Inc (NASDAQ:AMRS). This group of stocks' market values resemble MYGN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CALX,17,168914,2 QADA,18,127272,2 BCRX,26,250229,1 VSTO,22,186374,3 AXDX,13,51021,4 AUTL,13,49993,0 AMRS,16,141634,6 Average,17.9,139348,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.9 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $132 million in MYGN's case. BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) is the most popular stock in this table. On the other hand Accelerate Diagnostics Inc (NASDAQ:AXDX) is the least popular one with only 13 bullish hedge fund positions. Myriad Genetics, Inc. (NASDAQ:MYGN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MYGN is 63.3. 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. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on MYGN as the stock returned 15% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Get real-time email alerts: Follow Myriad Genetics Inc (NASDAQ:MYGN)
Disclosure: None. This article was originally published at Insider Monkey.