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Were Hedge Funds Right About Flocking Into InVitae Corporation (NVTA) ?

Nina Todic

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Is InVitae Corporation (NYSE:NVTA) a buy, sell, or hold? Hedge funds are taking an optimistic view. The number of long hedge fund bets went up by 4 in recent months. Our calculations also showed that nvta isn't among the 30 most popular stocks among hedge funds. NVTA was in 28 hedge funds' portfolios at the end of March. There were 24 hedge funds in our database with NVTA positions at the end of the previous quarter.

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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Felix Baker - Baker Bros.

Let's take a peek at the key hedge fund action regarding InVitae Corporation (NYSE:NVTA).

How are hedge funds trading InVitae Corporation (NYSE:NVTA)?

At Q1's end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NVTA over the last 15 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

No of Hedge Funds with NVTA Positions

More specifically, Baker Bros. Advisors was the largest shareholder of InVitae Corporation (NYSE:NVTA), with a stake worth $91.4 million reported as of the end of March. Trailing Baker Bros. Advisors was Casdin Capital, which amassed a stake valued at $51.5 million. Perceptive Advisors, Redmile Group, and Rock Springs Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, some big names have jumped into InVitae Corporation (NYSE:NVTA) headfirst. Opaleye Management, managed by James A. Silverman, established the largest position in InVitae Corporation (NYSE:NVTA). Opaleye Management had $10.3 million invested in the company at the end of the quarter. Thomas Steyer's Farallon Capital also made a $7 million investment in the stock during the quarter. The other funds with brand new NVTA positions are Brad Farber's Atika Capital, Mike Ogborne's Ogborne Capital, and Richard Driehaus's Driehaus Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as InVitae Corporation (NYSE:NVTA) but similarly valued. We will take a look at Great Western Bancorp Inc (NYSE:GWB), Tri Pointe Group Inc (NYSE:TPH), Diodes Incorporated (NASDAQ:DIOD), and PriceSmart, Inc. (NASDAQ:PSMT). This group of stocks' market values are similar to NVTA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GWB,14,55991,3 TPH,18,134709,3 DIOD,19,95633,4 PSMT,10,41769,2 Average,15.25,82026,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $348 million in NVTA's case. Diodes Incorporated (NASDAQ:DIOD) is the most popular stock in this table. On the other hand PriceSmart, Inc. (NASDAQ:PSMT) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks InVitae Corporation (NYSE:NVTA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately NVTA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NVTA were disappointed as the stock returned -23.6% during the same period 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 13 of these stocks already outperformed the market in Q2.

Disclosure: None. This article was originally published at Insider Monkey.

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