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Kaleido BioSciences, Inc. (KLDO) Is Burning These Hedge Funds

Abigail Fisher

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing more than 730 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of June 28th, 2019. What do these smart investors think about Kaleido BioSciences, Inc. (NASDAQ:KLDO)?

Kaleido BioSciences, Inc. (NASDAQ:KLDO) has seen a decrease in hedge fund sentiment in recent months. Our calculations also showed that KLDO 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.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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.

KLDO_nov2019
KLDO_nov2019

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 take a look at the recent hedge fund action regarding Kaleido BioSciences, Inc. (NASDAQ:KLDO).

How have hedgies been trading Kaleido BioSciences, Inc. (NASDAQ:KLDO)?

Heading into the third quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the first quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in KLDO a year ago. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Sahm Adrangi Kerrisdale Capital
Sahm Adrangi Kerrisdale Capital

Among these funds, Palo Alto Investors held the most valuable stake in Kaleido BioSciences, Inc. (NASDAQ:KLDO), which was worth $10.1 million at the end of the second quarter. On the second spot was Rock Springs Capital Management which amassed $1.2 million worth of shares. Moreover, Kerrisdale Capital, Arrowgrass Capital Partners, and Millennium Management were also bullish on Kaleido BioSciences, Inc. (NASDAQ:KLDO), allocating a large percentage of their portfolios to this stock.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: BlueCrest Capital Mgmt.. 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 KLDO as a viable investment and initiated a position in the stock.

Let's check out hedge fund activity in other stocks similar to Kaleido BioSciences, Inc. (NASDAQ:KLDO). These stocks are Legacy Housing Corporation (NASDAQ:LEGH), Regional Management Corp (NYSE:RM), Limelight Networks, Inc. (NASDAQ:LLNW), and DSP Group, Inc. (NASDAQ:DSPG). This group of stocks' market values resemble KLDO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LEGH,3,675,-4 RM,11,68103,-2 LLNW,11,34264,-1 DSPG,15,61381,2 Average,10,41106,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $13 million in KLDO's case. DSP Group, Inc. (NASDAQ:DSPG) is the most popular stock in this table. On the other hand Legacy Housing Corporation (NASDAQ:LEGH) is the least popular one with only 3 bullish hedge fund positions. Kaleido BioSciences, Inc. (NASDAQ:KLDO) 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 KLDO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KLDO investors were disappointed as the stock returned -35.1% 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.

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