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Were These Hedge Funds Right About Piling Into Intellia Therapeutics, Inc. (NTLA)?

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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Intellia Therapeutics, Inc. (NASDAQ:NTLA).

Intellia Therapeutics, Inc. (NASDAQ:NTLA) was in 41 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 30. This means the bullish number of hedge fund positions in this stock currently sits at its new all time high. NTLA investors should be aware of an increase in enthusiasm from smart money recently. There were 29 hedge funds in our database with NTLA holdings at the end of March. Our calculations also showed that NTLA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Richard Driehaus of Driehaus Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's take a gander at the recent hedge fund action encompassing Intellia Therapeutics, Inc. (NASDAQ:NTLA).

Do Hedge Funds Think NTLA Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 41% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in NTLA a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

The largest stake in Intellia Therapeutics, Inc. (NASDAQ:NTLA) was held by ARK Investment Management, which reported holding $1244.2 million worth of stock at the end of June. It was followed by Darwin Global Management with a $301.1 million position. Other investors bullish on the company included Viking Global, Adage Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Darwin Global Management allocated the biggest weight to Intellia Therapeutics, Inc. (NASDAQ:NTLA), around 48.58% of its 13F portfolio. Burrage Capital Management is also relatively very bullish on the stock, earmarking 10.33 percent of its 13F equity portfolio to NTLA.

Now, key money managers have been driving this bullishness. Darwin Global Management, managed by Abhishek Trehan, created the largest position in Intellia Therapeutics, Inc. (NASDAQ:NTLA). Darwin Global Management had $301.1 million invested in the company at the end of the quarter. Andreas Halvorsen's Viking Global also made a $157.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Phill Gross and Robert Atchinson's Adage Capital Management, Richard Driehaus's Driehaus Capital, and Efrem Kamen's Pura Vida Investments.

Let's now take a look at hedge fund activity in other stocks similar to Intellia Therapeutics, Inc. (NASDAQ:NTLA). We will take a look at Darling Ingredients Inc. (NYSE:DAR), Lightspeed Commerce Inc. (NYSE:LSPD), Repligen Corporation (NASDAQ:RGEN), ICON Public Limited Company (NASDAQ:ICLR), Magellan Midstream Partners, L.P. (NYSE:MMP), Teva Pharmaceutical Industries Limited (NYSE:TEVA), and Regency Centers Corp (NASDAQ:REG). This group of stocks' market values are closest to NTLA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DAR,41,839147,8 LSPD,29,649487,8 RGEN,35,1285346,-3 ICLR,39,1301455,10 MMP,13,89137,-1 TEVA,22,947100,-2 REG,25,192591,8 Average,29.1,757752,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $758 million. That figure was $2282 million in NTLA's case. Darling Ingredients Inc. (NYSE:DAR) is the most popular stock in this table. On the other hand Magellan Midstream Partners, L.P. (NYSE:MMP) is the least popular one with only 13 bullish hedge fund positions. Intellia Therapeutics, Inc. (NASDAQ:NTLA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NTLA 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately NTLA wasn't nearly as popular as these 5 stocks and hedge funds that were betting on NTLA were disappointed as the stock returned -16.3% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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