Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about InVitae Corporation (NYSE:NVTA).
InVitae Corporation (NYSE:NVTA) was in 16 hedge funds' portfolios at the end of the second quarter of 2019. NVTA shareholders have witnessed a decrease in hedge fund interest in recent months. There were 28 hedge funds in our database with NVTA holdings at the end of the previous quarter. Our calculations also showed that NVTA isn't among the 30 most popular stocks among hedge funds (see the video below). 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' 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the recent hedge fund action regarding InVitae Corporation (NYSE:NVTA).
What does smart money think about InVitae Corporation (NYSE:NVTA)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NVTA over the last 16 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, Baker Bros. Advisors was the largest shareholder of InVitae Corporation (NYSE:NVTA), with a stake worth $91.7 million reported as of the end of March. Trailing Baker Bros. Advisors was Casdin Capital, which amassed a stake valued at $90.2 million. Perceptive Advisors, Rock Springs Capital Management, and Deerfield Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since InVitae Corporation (NYSE:NVTA) has experienced declining sentiment from hedge fund managers, logic holds that there lies a certain "tier" of hedgies that slashed their positions entirely by the end of the second quarter. Intriguingly, James A. Silverman's Opaleye Management cut the biggest position of the 750 funds tracked by Insider Monkey, totaling about $10.3 million in stock, and Samuel Isaly's OrbiMed Advisors was right behind this move, as the fund dropped about $5.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 12 funds by the end of the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as InVitae Corporation (NYSE:NVTA) but similarly valued. We will take a look at Terex Corporation (NYSE:TEX), Cannae Holdings, Inc. (NYSE:CNNE), TTEC Holdings, Inc. (NASDAQ:TTEC), and Patterson Companies, Inc. (NASDAQ:PDCO). All of these stocks' market caps match NVTA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TEX,15,260697,-6 CNNE,19,275079,-5 TTEC,17,43423,2 PDCO,23,195300,-5 Average,18.5,193625,-3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $194 million. That figure was $329 million in NVTA's case. Patterson Companies, Inc. (NASDAQ:PDCO) is the most popular stock in this table. On the other hand Terex Corporation (NYSE:TEX) is the least popular one with only 15 bullish hedge fund positions. InVitae Corporation (NYSE:NVTA) is not the least popular stock in this group but hedge fund interest is still below average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NVTA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NVTA investors were disappointed as the stock returned -18% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.