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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Sangamo Therapeutics, Inc. (NASDAQ:SGMO).
Sangamo Therapeutics, Inc. (NASDAQ:SGMO) investors should be aware of a decrease in hedge fund interest of late. Sangamo Therapeutics, Inc. (NASDAQ:SGMO) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 29. There were 20 hedge funds in our database with SGMO holdings at the end of December. Our calculations also showed that SGMO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Henrik Rhenman of Rhenman & Partners Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 we're going to view the fresh hedge fund action surrounding Sangamo Therapeutics, Inc. (NASDAQ:SGMO).
Do Hedge Funds Think SGMO Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SGMO over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Two Sigma Advisors was the largest shareholder of Sangamo Therapeutics, Inc. (NASDAQ:SGMO), with a stake worth $17.6 million reported as of the end of March. Trailing Two Sigma Advisors was Citadel Investment Group, which amassed a stake valued at $15.7 million. Renaissance Technologies, Rhenman & Partners Asset Management, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rhenman & Partners Asset Management allocated the biggest weight to Sangamo Therapeutics, Inc. (NASDAQ:SGMO), around 0.67% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.21 percent of its 13F equity portfolio to SGMO.
Judging by the fact that Sangamo Therapeutics, Inc. (NASDAQ:SGMO) has experienced a decline in interest from hedge fund managers, it's safe to say that there lies a certain "tier" of fund managers who sold off their entire stakes in the first quarter. At the top of the heap, Noam Gottesman's GLG Partners sold off the biggest investment of all the hedgies watched by Insider Monkey, worth an estimated $2.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dumped its stock, about $1.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds in the first quarter.
Let's check out hedge fund activity in other stocks similar to Sangamo Therapeutics, Inc. (NASDAQ:SGMO). We will take a look at Cassava Sciences, Inc. (NASDAQ:SAVA), MacroGenics Inc (NASDAQ:MGNX), AppHarvest, Inc. (NASDAQ:APPH), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), Horace Mann Educators Corporation (NYSE:HMN), GMS Inc. (NYSE:GMS), and ArcBest Corp (NASDAQ:ARCB). This group of stocks' market values resemble SGMO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAVA,5,35601,-2 MGNX,30,596606,7 APPH,21,380762,21 FLWS,22,62575,-5 HMN,14,43951,1 GMS,19,266527,3 ARCB,13,87202,-1 Average,17.7,210461,3.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $92 million in SGMO's case. MacroGenics Inc (NASDAQ:MGNX) is the most popular stock in this table. On the other hand Cassava Sciences, Inc. (NASDAQ:SAVA) is the least popular one with only 5 bullish hedge fund positions. Sangamo Therapeutics, Inc. (NASDAQ:SGMO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SGMO is 43.6. 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 negative signal and 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately SGMO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SGMO investors were disappointed as the stock returned -20.7% since the end of March (through 7/23) 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 most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.