It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Xencor Inc (NASDAQ:XNCR).
Xencor Inc (NASDAQ:XNCR) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Compass Minerals International, Inc. (NYSE:CMP), Horace Mann Educators Corporation (NYSE:HMN), and LGI Homes Inc (NASDAQ:LGIH) to gather more data points. Our calculations also showed that XNCR 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.
To most shareholders, hedge funds are seen as slow, outdated financial tools of yesteryear. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the moguls of this group, around 750 funds. These hedge fund managers handle the majority of the hedge fund industry's total asset base, and by observing their inimitable equity investments, Insider Monkey has deciphered a number of investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_728973" align="aligncenter" width="1613"] Oleg Nodelman of EcoR1 Capital[/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 analyze the recent hedge fund action encompassing Xencor Inc (NASDAQ:XNCR).
What does smart money think about Xencor Inc (NASDAQ:XNCR)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in XNCR a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, EcoR1 Capital was the largest shareholder of Xencor Inc (NASDAQ:XNCR), with a stake worth $84.4 million reported as of the end of September. Trailing EcoR1 Capital was Redmile Group, which amassed a stake valued at $29.7 million. Baker Bros. Advisors, Point72 Asset Management, and AQR 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 EcoR1 Capital allocated the biggest weight to Xencor Inc (NASDAQ:XNCR), around 10.66% of its 13F portfolio. Redmile Group is also relatively very bullish on the stock, dishing out 0.99 percent of its 13F equity portfolio to XNCR.
Since Xencor Inc (NASDAQ:XNCR) has witnessed falling interest from hedge fund managers, it's easy to see that there is a sect of money managers who sold off their entire stakes in the third quarter. Interestingly, Israel Englander's Millennium Management sold off the biggest position of the 750 funds monitored by Insider Monkey, comprising about $67.7 million in stock. Ken Griffin's fund, Citadel Investment Group, also said goodbye to its stock, about $1.8 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Xencor Inc (NASDAQ:XNCR) but similarly valued. We will take a look at Compass Minerals International, Inc. (NYSE:CMP), Horace Mann Educators Corporation (NYSE:HMN), LGI Homes Inc (NASDAQ:LGIH), and The RealReal, Inc. (NASDAQ:REAL). This group of stocks' market caps match XNCR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMP,13,139635,-3 HMN,13,35454,1 LGIH,14,130437,2 REAL,20,83144,-13 Average,15,97168,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $140 million in XNCR's case. The RealReal, Inc. (NASDAQ:REAL) is the most popular stock in this table. On the other hand Compass Minerals International, Inc. (NYSE:CMP) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Xencor Inc (NASDAQ:XNCR) is even less popular than CMP. Hedge funds clearly dropped the ball on XNCR as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on XNCR as the stock returned 16.8% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.