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 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-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' consensus 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 Stemline Therapeutics Inc (NASDAQ:STML).
Is Stemline Therapeutics Inc (NASDAQ:STML) a buy here? Prominent investors are becoming less confident. The number of bullish hedge fund bets shrunk by 3 recently. Our calculations also showed that STML isn't among the 30 most popular stocks among hedge funds (see the video below). STML was in 17 hedge funds' portfolios at the end of the second quarter of 2019. There were 20 hedge funds in our database with STML holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are a multitude of indicators market participants employ to evaluate stocks. Two of the most innovative indicators are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best money managers can outclass the S&P 500 by a superb margin (see the details here).
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. We're going to analyze the key hedge fund action regarding Stemline Therapeutics Inc (NASDAQ:STML).
How have hedgies been trading Stemline Therapeutics Inc (NASDAQ:STML)?
At Q2's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the first quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in STML a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Adage Capital Management was the largest shareholder of Stemline Therapeutics Inc (NASDAQ:STML), with a stake worth $61.3 million reported as of the end of March. Trailing Adage Capital Management was Rubric Capital Management, which amassed a stake valued at $43.3 million. Farallon Capital, Polar Capital, and Healthcor Management LP were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Stemline Therapeutics Inc (NASDAQ:STML) has experienced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that decided to sell off their entire stakes in the second quarter. Intriguingly, Nathaniel August's Mangrove Partners said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $8.2 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund dropped about $5.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 3 funds in the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Stemline Therapeutics Inc (NASDAQ:STML) but similarly valued. We will take a look at Quotient Limited (NASDAQ:QTNT), HarborOne Bancorp, Inc. (NASDAQ:HONE), MYR Group Inc (NASDAQ:MYRG), and First Foundation Inc (NASDAQ:FFWM). This group of stocks' market caps resemble STML's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QTNT,20,280265,0 HONE,4,11384,0 MYRG,11,25997,-4 FFWM,10,77057,-1 Average,11.25,98676,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $226 million in STML's case. Quotient Limited (NASDAQ:QTNT) is the most popular stock in this table. On the other hand HarborOne Bancorp, Inc. (NASDAQ:HONE) is the least popular one with only 4 bullish hedge fund positions. Stemline Therapeutics Inc (NASDAQ:STML) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately STML wasn't nearly as popular as these 20 stocks and hedge funds that were betting on STML were disappointed as the stock returned -32% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.