It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. 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 Moderna, Inc. (NASDAQ:MRNA).
Is Moderna, Inc. (NASDAQ:MRNA) a good investment now? Prominent investors are becoming less confident. The number of long hedge fund positions dropped by 2 recently. Our calculations also showed that MRNA isn't among the 30 most popular stocks among hedge funds. MRNA was in 15 hedge funds' portfolios at the end of March. There were 17 hedge funds in our database with MRNA positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's review the recent hedge fund action encompassing Moderna, Inc. (NASDAQ:MRNA).
Hedge fund activity in Moderna, Inc. (NASDAQ:MRNA)
Heading into the second quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards MRNA over the last 15 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Viking Global held the most valuable stake in Moderna, Inc. (NASDAQ:MRNA), which was worth $339.2 million at the end of the first quarter. On the second spot was Theleme Partners which amassed $33.2 million worth of shares. Moreover, RA Capital Management, Platinum Asset Management, and Hillhouse Capital Management were also bullish on Moderna, Inc. (NASDAQ:MRNA), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Moderna, Inc. (NASDAQ:MRNA) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there were a few fund managers that decided to sell off their entire stakes in the third quarter. Interestingly, Robert Pohly's Samlyn Capital dropped the biggest stake of all the hedgies watched by Insider Monkey, comprising close to $5 million in stock, and Alec Litowitz and Ross Laser's Magnetar Capital was right behind this move, as the fund dumped about $0.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Moderna, Inc. (NASDAQ:MRNA). We will take a look at Zayo Group Holdings Inc (NYSE:ZAYO), Genpact Limited (NYSE:G), AerCap Holdings N.V. (NYSE:AER), and Gerdau SA (NYSE:GGB). This group of stocks' market valuations are closest to MRNA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZAYO,61,1681079,5 G,29,600991,7 AER,23,792415,-8 GGB,10,168753,-2 Average,30.75,810810,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $811 million. That figure was $493 million in MRNA's case. Zayo Group Holdings Inc (NYSE:ZAYO) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 10 bullish hedge fund positions. Moderna, Inc. (NASDAQ:MRNA) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately MRNA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MRNA investors were disappointed as the stock returned -23.8% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.