The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Unity Biotechnology, Inc. (NASDAQ:UBX) from the perspective of those elite funds.
Unity Biotechnology, Inc. (NASDAQ:UBX) was in 5 hedge funds' portfolios at the end of June. UBX investors should be aware of an increase in support from the world's most elite money managers in recent months. There were 4 hedge funds in our database with UBX positions at the end of the previous quarter. Our calculations also showed that UBX isn't among the 30 most popular stocks among hedge funds (see the video below). 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. We're going to take a glance at the fresh hedge fund action encompassing Unity Biotechnology, Inc. (NASDAQ:UBX).
How have hedgies been trading Unity Biotechnology, Inc. (NASDAQ:UBX)?
At the end of the second quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UBX over the last 16 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Unity Biotechnology, Inc. (NASDAQ:UBX) was held by EcoR1 Capital, which reported holding $9.9 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $2.3 million position. Other investors bullish on the company included Sio Capital, Millennium Management, and Ellington.
Now, key hedge funds were leading the bulls' herd. Sio Capital, managed by Michael Castor, initiated the most valuable position in Unity Biotechnology, Inc. (NASDAQ:UBX). Sio Capital had $1 million invested in the company at the end of the quarter. Mike Vranos's Ellington also initiated a $0.1 million position during the quarter.
Let's now take a look at hedge fund activity in other stocks similar to Unity Biotechnology, Inc. (NASDAQ:UBX). We will take a look at Majesco (NASDAQ:MJCO), Westport Fuel Systems Inc. (NASDAQ:WPRT), Secoo Holding Limited (NASDAQ:SECO), and Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB). All of these stocks' market caps match UBX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MJCO,3,423,0 WPRT,13,36374,1 SECO,7,18956,-1 RRGB,12,31975,-3 Average,8.75,21932,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $14 million in UBX's case. Westport Fuel Systems Inc. (NASDAQ:WPRT) is the most popular stock in this table. On the other hand Majesco (NASDAQ:MJCO) is the least popular one with only 3 bullish hedge fund positions. Unity Biotechnology, Inc. (NASDAQ:UBX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 UBX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UBX investors were disappointed as the stock returned -35.8% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.