Is KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) has seen a decrease in activity from the world's largest hedge funds of late. KALV was in 15 hedge funds' portfolios at the end of June. There were 19 hedge funds in our database with KALV positions at the end of the previous quarter. Our calculations also showed that KALV 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 other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let's go over the recent hedge fund action regarding KalVista Pharmaceuticals, Inc. (NASDAQ:KALV).
How have hedgies been trading KalVista Pharmaceuticals, Inc. (NASDAQ:KALV)?
At Q2's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KALV over the last 16 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) was held by Polar Capital, which reported holding $30.7 million worth of stock at the end of March. It was followed by Vivo Capital with a $30.1 million position. Other investors bullish on the company included Deerfield Management, Adage Capital Management, and Ghost Tree Capital.
Since KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few funds that decided to sell off their positions entirely in the second quarter. At the top of the heap, Peter Kolchinsky's RA Capital Management dropped the largest stake of the "upper crust" of funds watched by Insider Monkey, comprising close to $41.2 million in stock. Renaissance Technologies, also dropped its stock, about $4.6 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds in the second quarter.
Let's now review hedge fund activity in other stocks similar to KalVista Pharmaceuticals, Inc. (NASDAQ:KALV). We will take a look at ProQR Therapeutics NV (NASDAQ:PRQR), Timkensteel Corporation (NYSE:TMST), Syros Pharmaceuticals, Inc. (NASDAQ:SYRS), and HighPoint Resources Corporation (NYSE:HPR). This group of stocks' market valuations are closest to KALV's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRQR,9,64723,-1 TMST,16,54809,3 SYRS,13,83094,5 HPR,8,48067,-6 Average,11.5,62673,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $119 million in KALV's case. Timkensteel Corporation (NYSE:TMST) is the most popular stock in this table. On the other hand HighPoint Resources Corporation (NYSE:HPR) is the least popular one with only 8 bullish hedge fund positions. KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 KALV wasn't nearly as popular as these 20 stocks and hedge funds that were betting on KALV were disappointed as the stock returned -47.6% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.