Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. 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 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Spark Therapeutics Inc (NASDAQ:ONCE) was in 36 hedge funds' portfolios at the end of September. ONCE investors should pay attention to a decrease in hedge fund interest of late. There were 39 hedge funds in our database with ONCE positions at the end of the previous quarter. Our calculations also showed that ONCE 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_746825" align="aligncenter" width="473"] Matthew Halbower of Pentwater Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's check out the new hedge fund action regarding Spark Therapeutics Inc (NASDAQ:ONCE).
How have hedgies been trading Spark Therapeutics Inc (NASDAQ:ONCE)?
At Q3's end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ONCE over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Pentwater Capital Management, managed by Matthew Halbower, holds the most valuable position in Spark Therapeutics Inc (NASDAQ:ONCE). Pentwater Capital Management has a $204 million position in the stock, comprising 3.2% of its 13F portfolio. The second largest stake is held by John Paulson of Paulson & Co, with a $139.4 million position; the fund has 2.8% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions comprise Eli Casdin's Casdin Capital, Robert Emil Zoellner's Alpine Associates and Alec Litowitz and Ross Laser's Magnetar Capital. In terms of the portfolio weights assigned to each position Twin Capital Management allocated the biggest weight to Spark Therapeutics Inc (NASDAQ:ONCE), around 17% of its portfolio. Casdin Capital is also relatively very bullish on the stock, dishing out 9.06 percent of its 13F equity portfolio to ONCE.
Because Spark Therapeutics Inc (NASDAQ:ONCE) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few funds that slashed their positions entirely by the end of the third quarter. At the top of the heap, Renaissance Technologies said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, totaling an estimated $39.9 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund said goodbye to about $25.1 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to Spark Therapeutics Inc (NASDAQ:ONCE). We will take a look at Q2 Holdings Inc (NYSE:QTWO), Laureate Education, Inc. (NASDAQ:LAUR), GrafTech International Ltd. (NYSE:EAF), and Alcoa Corporation (NYSE:AA). This group of stocks' market valuations match ONCE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QTWO,16,153545,-5 LAUR,25,505326,2 EAF,26,276282,-1 AA,28,530144,2 Average,23.75,366324,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $1272 million in ONCE's case. Alcoa Corporation (NYSE:AA) is the most popular stock in this table. On the other hand Q2 Holdings Inc (NYSE:QTWO) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Spark Therapeutics Inc (NASDAQ:ONCE) 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 ONCE as the stock returned 14.6% 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.