We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Kura Oncology, Inc. (NASDAQ:KURA).
Is Kura Oncology, Inc. (NASDAQ:KURA) a buy here? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund bets were trimmed by 4 lately. Our calculations also showed that KURA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). KURA was in 18 hedge funds' portfolios at the end of September. There were 22 hedge funds in our database with KURA holdings at the end of the previous quarter. 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 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 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.
[caption id="attachment_728973" align="aligncenter" width="473"] Oleg Nodelman of EcoR1 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's view the recent hedge fund action regarding Kura Oncology, Inc. (NASDAQ:KURA).
How are hedge funds trading Kura Oncology, Inc. (NASDAQ:KURA)?
At Q3's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KURA over the last 17 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, EcoR1 Capital held the most valuable stake in Kura Oncology, Inc. (NASDAQ:KURA), which was worth $61.3 million at the end of the third quarter. On the second spot was Great Point Partners which amassed $46.8 million worth of shares. Biotechnology Value Fund, Cormorant Asset Management, and Prosight 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 EcoR1 Capital allocated the biggest weight to Kura Oncology, Inc. (NASDAQ:KURA), around 7.74% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, setting aside 7.47 percent of its 13F equity portfolio to KURA.
Judging by the fact that Kura Oncology, Inc. (NASDAQ:KURA) has faced bearish sentiment from hedge fund managers, logic holds that there is a sect of funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Israel Englander's Millennium Management dumped the biggest investment of all the hedgies tracked by Insider Monkey, worth about $1.9 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund dropped about $0.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to Kura Oncology, Inc. (NASDAQ:KURA). We will take a look at Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE:LOMA), First Foundation Inc (NASDAQ:FFWM), Impinj, Inc. (NASDAQ:PI), and Byline Bancorp, Inc. (NYSE:BY). This group of stocks' market valuations match KURA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LOMA,9,21002,-5 FFWM,12,72231,2 PI,15,213268,-2 BY,5,20148,0 Average,10.25,81662,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $192 million in KURA's case. Impinj, Inc. (NASDAQ:PI) is the most popular stock in this table. On the other hand Byline Bancorp, Inc. (NYSE:BY) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Kura Oncology, Inc. (NASDAQ:KURA) is more popular among hedge funds. 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. Unfortunately KURA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on KURA were disappointed as the stock returned 5.1% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.