Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) the right investment to pursue these days? The smart money is becoming hopeful. The number of long hedge fund bets increased by 1 lately. Our calculations also showed that MNTA isn't among the 30 most popular stocks among hedge funds (see the video below). MNTA was in 19 hedge funds' portfolios at the end of the second quarter of 2019. There were 18 hedge funds in our database with MNTA positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Let's take a gander at the new hedge fund action surrounding Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA).
Hedge fund activity in Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA)
At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in MNTA a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
[caption id="attachment_758402" align="aligncenter" width="450"] William Leland Edwards of Palo Alto Investors[/caption]
Among these funds, Camber Capital Management held the most valuable stake in Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), which was worth $43.6 million at the end of the second quarter. On the second spot was Perceptive Advisors which amassed $36.2 million worth of shares. Moreover, Palo Alto Investors, D E Shaw, and Renaissance Technologies were also bullish on Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key hedge funds have jumped into Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) headfirst. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). Point72 Asset Management had $2.6 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also made a $1 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith's Laurion Capital Management, Michael Gelband's ExodusPoint Capital, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) but similarly valued. These stocks are FormFactor, Inc. (NASDAQ:FORM), Innovative Industrial Properties, Inc. (NYSE:IIPR), Sonos, Inc. (NASDAQ:SONO), and Encore Wire Corporation (NASDAQ:WIRE). This group of stocks' market values are similar to MNTA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FORM,14,44283,3 IIPR,10,24592,1 SONO,21,84443,-1 WIRE,15,48049,-1 Average,15,50342,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $181 million in MNTA's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand Innovative Industrial Properties, Inc. (NYSE:IIPR) is the least popular one with only 10 bullish hedge fund positions. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on MNTA, though not to the same extent, as the stock returned 4.1% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.