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 Principia Biopharma Inc. (NASDAQ:PRNB).
Principia Biopharma Inc. (NASDAQ:PRNB) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Genfit SA (NASDAQ:GNFT), Amerant Bancorp Inc. (NASDAQ:AMTB), and Cortexyme, Inc. (NASDAQ:CRTX) to gather more data points. Our calculations also showed that PRNB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_341400" align="aligncenter" width="600"] Samuel Isaly of OrbiMed Advisors[/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. We're going to check out the recent hedge fund action surrounding Principia Biopharma Inc. (NASDAQ:PRNB).
Hedge fund activity in Principia Biopharma Inc. (NASDAQ:PRNB)
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in PRNB a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Baker Bros. Advisors held the most valuable stake in Principia Biopharma Inc. (NASDAQ:PRNB), which was worth $46.7 million at the end of the third quarter. On the second spot was OrbiMed Advisors which amassed $45.3 million worth of shares. Cormorant Asset Management, Redmile Group, and Partner Fund Management 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 Samsara BioCapital allocated the biggest weight to Principia Biopharma Inc. (NASDAQ:PRNB), around 7.37% of its 13F portfolio. Cormorant Asset Management is also relatively very bullish on the stock, earmarking 2.31 percent of its 13F equity portfolio to PRNB.
Since Principia Biopharma Inc. (NASDAQ:PRNB) has experienced declining sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of hedgies that decided to sell off their full holdings in the third quarter. Intriguingly, Israel Englander's Millennium Management cut the largest stake of the 750 funds watched by Insider Monkey, worth about $1.3 million in stock. Renaissance Technologies, also said goodbye to its stock, about $0.4 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Principia Biopharma Inc. (NASDAQ:PRNB). We will take a look at Genfit SA (NASDAQ:GNFT), Amerant Bancorp Inc. (NASDAQ:AMTB), Cortexyme, Inc. (NASDAQ:CRTX), and Camden National Corporation (NASDAQ:CAC). This group of stocks' market caps are closest to PRNB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GNFT,4,19777,-2 AMTB,4,7814,2 CRTX,3,2065,1 CAC,10,67925,0 Average,5.25,24395,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $197 million in PRNB's case. Camden National Corporation (NASDAQ:CAC) is the most popular stock in this table. On the other hand Cortexyme, Inc. (NASDAQ:CRTX) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Principia Biopharma Inc. (NASDAQ:PRNB) 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. Hedge funds were also right about betting on PRNB as the stock returned 26.9% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.