Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Infinity Pharmaceuticals Inc. (NASDAQ:INFI).
Hedge fund interest in Infinity Pharmaceuticals Inc. (NASDAQ:INFI) shares was flat at the end of last quarter. This is usually a negative indicator. 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 SCYNEXIS Inc (NASDAQ:SCYX), NewLink Genetics Corporation (NASDAQ:NLNK), and Catalyst Biosciences Inc (NASDAQ:CBIO) to gather more data points. Our calculations also showed that INFI 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.
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.
[caption id="attachment_339612" align="aligncenter" width="450"] Kerr Neilson of Platinum Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a look at the recent hedge fund action encompassing Infinity Pharmaceuticals Inc. (NASDAQ:INFI).
How have hedgies been trading Infinity Pharmaceuticals Inc. (NASDAQ:INFI)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in INFI over the last 17 quarters. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Biotechnology Value Fund, managed by Mark Lampert, holds the biggest position in Infinity Pharmaceuticals Inc. (NASDAQ:INFI). Biotechnology Value Fund has a $18 million position in the stock, comprising 1.9% of its 13F portfolio. Sitting at the No. 2 spot is Platinum Asset Management, managed by Kerr Neilson, which holds a $1.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Renaissance Technologies, Julian Baker and Felix Baker's Baker Bros. Advisors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Biotechnology Value Fund allocated the biggest weight to Infinity Pharmaceuticals Inc. (NASDAQ:INFI), around 1.89% of its 13F portfolio. Platinum Asset Management is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to INFI.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Infinity Pharmaceuticals Inc. (NASDAQ:INFI) but similarly valued. These stocks are SCYNEXIS Inc (NASDAQ:SCYX), NewLink Genetics Corporation (NASDAQ:NLNK), Catalyst Biosciences Inc (NASDAQ:CBIO), and AGBA Acquisition Limited (NASDAQ:AGBA). This group of stocks' market valuations are similar to INFI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCYX,6,2467,2 NLNK,6,6218,1 CBIO,11,18597,0 AGBA,3,4291,3 Average,6.5,7893,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $21 million in INFI's case. Catalyst Biosciences Inc (NASDAQ:CBIO) is the most popular stock in this table. On the other hand AGBA Acquisition Limited (NASDAQ:AGBA) is the least popular one with only 3 bullish hedge fund positions. Infinity Pharmaceuticals Inc. (NASDAQ:INFI) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on INFI as the stock returned 23.3% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.