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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Dicerna Pharmaceuticals Inc (NASDAQ:DRNA).
Is Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) a marvelous investment right now? The smart money was buying. The number of long hedge fund positions advanced by 10 lately. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) was in 35 hedge funds' portfolios at the end of June. The all time high for this statistics is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DRNA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 25 hedge funds in our database with DRNA holdings at the end of March.
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let's take a gander at the new hedge fund action surrounding Dicerna Pharmaceuticals Inc (NASDAQ:DRNA).
How are hedge funds trading Dicerna Pharmaceuticals Inc (NASDAQ:DRNA)?
At second quarter's end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in DRNA a year ago. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, EcoR1 Capital held the most valuable stake in Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), which was worth $69.1 million at the end of the third quarter. On the second spot was Bridger Management which amassed $37.4 million worth of shares. Aquilo Capital Management, Driehaus Capital, and Citadel Investment Group 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 Aquilo Capital Management allocated the biggest weight to Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), around 7.45% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, earmarking 5.11 percent of its 13F equity portfolio to DRNA.
Consequently, key money managers have jumped into Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) headfirst. Perceptive Advisors, managed by Joseph Edelman, established the most valuable position in Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). Perceptive Advisors had $20.3 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also made a $5.3 million investment in the stock during the quarter. The other funds with brand new DRNA positions are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Andre F. Perold's HighVista Strategies, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's check out hedge fund activity in other stocks similar to Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). We will take a look at EVO Payments, Inc. (NASDAQ:EVOP), Atlas Corp. (NYSE:ATCO), SciPlay Corporation (NASDAQ:SCPL), BankUnited Inc (NYSE:BKU), Nelnet, Inc. (NYSE:NNI), Simmons First National Corporation (NASDAQ:SFNC), and Cantel Medical Corp. (NYSE:CMD). All of these stocks' market caps are similar to DRNA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVOP,14,49627,4 ATCO,12,790416,-1 SCPL,26,136195,9 BKU,16,187994,-2 NNI,12,84098,-1 SFNC,13,30834,9 CMD,19,134676,2 Average,16,201977,2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $202 million. That figure was $342 million in DRNA's case. SciPlay Corporation (NASDAQ:SCPL) is the most popular stock in this table. On the other hand Atlas Corp. (NYSE:ATCO) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is more popular among hedge funds. Our overall hedge fund sentiment score for DRNA is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately DRNA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DRNA were disappointed as the stock returned -17.4% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.