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While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding I-Mab (NASDAQ:IMAB).
Is IMAB a good stock to buy now? I-Mab (NASDAQ:IMAB) investors should be aware of an increase in support from the world's most elite money managers recently. I-Mab (NASDAQ:IMAB) was in 11 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 4. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that IMAB isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
Phillip Gross of Adage Capital
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let's take a look at the latest hedge fund action encompassing I-Mab (NASDAQ:IMAB).
Do Hedge Funds Think IMAB Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 267% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in IMAB over the last 21 quarters. 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, Hillhouse Capital Management was the largest shareholder of I-Mab (NASDAQ:IMAB), with a stake worth $70.4 million reported as of the end of September. Trailing Hillhouse Capital Management was Adage Capital Management, which amassed a stake valued at $55.5 million. OrbiMed Advisors, Sphera Global Healthcare Fund, and Ikarian Capital 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 Sphera Global Healthcare Fund allocated the biggest weight to I-Mab (NASDAQ:IMAB), around 0.84% of its 13F portfolio. Indus Capital is also relatively very bullish on the stock, earmarking 0.7 percent of its 13F equity portfolio to IMAB.
As industrywide interest jumped, key money managers were breaking ground themselves. Hillhouse Capital Management, managed by Lei Zhang, assembled the most valuable position in I-Mab (NASDAQ:IMAB). Hillhouse Capital Management had $70.4 million invested in the company at the end of the quarter. The other funds with new positions in the stock are Doron Breen and Mori Arkin's Sphera Global Healthcare Fund, Neil Shahrestani's Ikarian Capital, and David Kowitz and Sheldon Kasowitz's Indus Capital.
Let's also examine hedge fund activity in other stocks similar to I-Mab (NASDAQ:IMAB). We will take a look at Louisiana-Pacific Corporation (NYSE:LPX), Power Integrations Inc (NASDAQ:POWI), Companhia Brasileira de Distrib. (NYSE:CBD), New Residential Investment Corp (NYSE:NRZ), EQT Corporation (NYSE:EQT), Granite Real Estate Investment Trust (NYSE:GRP), and Saia Inc (NASDAQ:SAIA). This group of stocks' market values are similar to IMAB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LPX,40,514404,2 POWI,20,109923,3 CBD,7,10539,1 NRZ,21,134416,-1 EQT,39,310693,5 GRP,6,29425,0 SAIA,20,67732,3 Average,21.9,168162,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $168 million. That figure was $184 million in IMAB's case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 6 bullish hedge fund positions. I-Mab (NASDAQ:IMAB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IMAB is 47.4. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately IMAB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IMAB investors were disappointed as the stock returned -18.1% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.