We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Allogene Therapeutics, Inc. (NASDAQ:ALLO) and determine whether hedge funds skillfully traded this stock.
Allogene Therapeutics, Inc. (NASDAQ:ALLO) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as NovaGold Resources Inc. (NYSE:NG), Corelogic Inc (NYSE:CLGX), and Brady Corp (NYSE:BRC) to gather more data points. Our calculations also showed that ALLO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Kris Jenner of Rock Springs Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the recent hedge fund action surrounding Allogene Therapeutics, Inc. (NASDAQ:ALLO).
What does smart money think about Allogene Therapeutics, Inc. (NASDAQ:ALLO)?
Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ALLO over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Allogene Therapeutics, Inc. (NASDAQ:ALLO) was held by Perceptive Advisors, which reported holding $30 million worth of stock at the end of September. It was followed by Wildcat Capital Management with a $26.2 million position. Other investors bullish on the company included Avoro Capital Advisors (venBio Select Advisor), Casdin Capital, and Rock Springs Capital Management. In terms of the portfolio weights assigned to each position Wildcat Capital Management allocated the biggest weight to Allogene Therapeutics, Inc. (NASDAQ:ALLO), around 11.95% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, setting aside 1.03 percent of its 13F equity portfolio to ALLO.
Due to the fact that Allogene Therapeutics, Inc. (NASDAQ:ALLO) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there were a few funds that decided to sell off their full holdings last quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw dumped the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $3.2 million in stock. Peter Muller’s fund, PDT Partners, also sold off its stock, about $0.4 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Allogene Therapeutics, Inc. (NASDAQ:ALLO). These stocks are NovaGold Resources Inc. (NYSE:NG), Corelogic Inc (NYSE:CLGX), Brady Corp (NYSE:BRC), and Nordstrom, Inc. (NYSE:JWN). This group of stocks’ market caps are similar to ALLO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NG | 19 | 297032 | 3 |
| CLGX | 31 | 253322 | 3 |
| BRC | 10 | 140433 | -5 |
| JWN | 25 | 72883 | -5 |
| Average | 21.25 | 190918 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $102 million in ALLO’s case. Corelogic Inc (NYSE:CLGX) is the most popular stock in this table. On the other hand Brady Corp (NYSE:BRC) is the least popular one with only 10 bullish hedge fund positions. Allogene Therapeutics, Inc. (NASDAQ:ALLO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on ALLO as the stock returned 120.3% during the second quarter and outperformed the market by an even larger margin.
Follow Allogene Therapeutics Inc. (NASDAQ:ALLO)
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Disclosure: None. This article was originally published at Insider Monkey.
