Is Spero Therapeutics, Inc. (NASDAQ:SPRO) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Spero Therapeutics, Inc. (NASDAQ:SPRO) was in 7 hedge funds' portfolios at the end of the third quarter of 2019. SPRO investors should pay attention to a decrease in hedge fund interest of late. There were 8 hedge funds in our database with SPRO positions at the end of the previous quarter. Our calculations also showed that SPRO 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' 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.
[caption id="attachment_341400" align="aligncenter" width="600"] Samuel Isaly of OrbiMed Advisors[/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 gander at the new hedge fund action surrounding Spero Therapeutics, Inc. (NASDAQ:SPRO).
Hedge fund activity in Spero Therapeutics, Inc. (NASDAQ:SPRO)
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in SPRO a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Aquilo Capital Management was the largest shareholder of Spero Therapeutics, Inc. (NASDAQ:SPRO), with a stake worth $12.2 million reported as of the end of September. Trailing Aquilo Capital Management was Biotechnology Value Fund, which amassed a stake valued at $10 million. Rock Springs Capital Management, Renaissance Technologies, and OrbiMed 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 Aquilo Capital Management allocated the biggest weight to Spero Therapeutics, Inc. (NASDAQ:SPRO), around 8.62% of its 13F portfolio. Biotechnology Value Fund is also relatively very bullish on the stock, setting aside 1.05 percent of its 13F equity portfolio to SPRO.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SPRO as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Spero Therapeutics, Inc. (NASDAQ:SPRO) but similarly valued. These stocks are BP Prudhoe Bay Royalty Trust (NYSE:BPT), Shore Bancshares, Inc. (NASDAQ:SHBI), DHX Media Ltd (NASDAQ:DHXM), and Gain Capital Holdings Inc (NYSE:GCAP). This group of stocks' market caps are closest to SPRO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BPT,3,1306,-2 SHBI,3,12669,-1 DHXM,4,57459,0 GCAP,9,21200,0 Average,4.75,23159,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $32 million in SPRO's case. Gain Capital Holdings Inc (NYSE:GCAP) is the most popular stock in this table. On the other hand BP Prudhoe Bay Royalty Trust (NYSE:BPT) is the least popular one with only 3 bullish hedge fund positions. Spero Therapeutics, Inc. (NASDAQ:SPRO) is not the most popular stock in this group but hedge fund interest is still above average. 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 SPRO as the stock returned 12.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.