Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Is Versartis Inc (NASDAQ:VSAR) the right investment to pursue these days? Hedge funds are getting more optimistic. The number of long hedge fund bets that are revealed through the 13F filings inched up by 9 recently. VSAR was in 15 hedge funds’ portfolios at the end of the third quarter of 2016. There were 6 hedge funds in our database with VSAR positions at the end of the previous quarter. At the end of this article we will also compare VSAR to other stocks including Casella Waste Systems Inc. (NASDAQ:CWST), NMI Holdings Inc (NASDAQ:NMIH), and DICE HOLDINGS, INC. (NYSE:DHX) to get a better sense of its popularity.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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What have hedge funds been doing with Versartis Inc (NASDAQ:VSAR)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a 150% surge from the second quarter of 2016. On the other hand, there were a total of 10 hedge funds with a bullish position in VSAR at the beginning of this year, showing a 50% increase this year. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Perceptive Advisors, led by Joseph Edelman, holds the most valuable position in Versartis Inc (NASDAQ:VSAR). Perceptive Advisors has a $49.4 million position in the stock, comprising 3.2% of its 13F portfolio. The second most bullish fund manager is Aisling Capital, led by Dennis Purcell, holding a $30.9 million position; 6.4% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish include Julian Baker and Felix Baker’s Baker Bros. Advisors, Mark Kingdon’s Kingdon Capital, and Philip Hempleman’s Ardsley Partners. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
With general bullishness amongst the heavyweights, key money managers have been driving this optimism. Ardsley Partners, led by Philip Hempleman, created the most valuable position in Versartis Inc (NASDAQ:VSAR). Ardsley Partners had $3.4 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $2.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Hal Mintz’s Sabby Capital, Behzad Aghazadeh’s venBio Select Advisor, and Israel Englander’s Millennium Management.
Let’s go over hedge fund activity in other stocks similar to Versartis Inc (NASDAQ:VSAR). These stocks are Casella Waste Systems Inc. (NASDAQ:CWST), NMI Holdings Inc (NASDAQ:NMIH), DICE HOLDINGS, INC. (NYSE:DHX), and Flexion Therapeutics Inc (NASDAQ:FLXN). This group of stocks’ market valuations match VSAR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CWST | 18 | 101181 | 3 |
| NMIH | 21 | 145771 | 4 |
| DHX | 17 | 28977 | 0 |
| FLXN | 8 | 40444 | -3 |
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $123 million in VSAR’s case. NMI Holdings Inc (NASDAQ:NMIH) is the most popular stock in this table. On the other hand Flexion Therapeutics Inc (NASDAQ:FLXN) is the least popular one with only 8 bullish hedge fund positions. Versartis Inc (NASDAQ:VSAR) 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. In this regard NMIH might be a better candidate to consider taking a long position in.
Disclosure: None
