Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Assembly Biosciences Inc (NASDAQ:ASMB) investors should be aware of a decrease in hedge fund interest lately. ASMB was in 16 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with ASMB positions at the end of the previous quarter. Our calculations also showed that ASMB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Kris Jenner of Rock Springs Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the new hedge fund action encompassing Assembly Biosciences Inc (NASDAQ:ASMB).
What have hedge funds been doing with Assembly Biosciences Inc (NASDAQ:ASMB)?
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ASMB over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Armistice Capital, managed by Steven Boyd, holds the biggest position in Assembly Biosciences Inc (NASDAQ:ASMB). Armistice Capital has a $24.3 million position in the stock, comprising 1.6% of its 13F portfolio. Coming in second is Rock Springs Capital Management, led by Kris Jenner, Gordon Bussard, Graham McPhail, holding a $12.8 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Julian Baker and Felix Baker’s Baker Bros. Advisors, Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Armistice Capital allocated the biggest weight to Assembly Biosciences Inc (NASDAQ:ASMB), around 1.61% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, setting aside 1.22 percent of its 13F equity portfolio to ASMB.
Because Assembly Biosciences Inc (NASDAQ:ASMB) has witnessed bearish sentiment from the smart money, it’s safe to say that there were a few hedge funds who were dropping their entire stakes heading into Q4. It’s worth mentioning that Samuel Isaly’s OrbiMed Advisors dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, totaling about $7.1 million in stock. Lawrence Hawkins’s fund, Prosight Capital, also cut its stock, about $2.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Assembly Biosciences Inc (NASDAQ:ASMB). We will take a look at Landcadia Holdings, Inc. (NASDAQ:LCAHU), Tiptree Inc. (NASDAQ:TIPT), TETRA Technologies, Inc. (NYSE:TTI), and ACM Research, Inc. (NASDAQ:ACMR). All of these stocks’ market caps resemble ASMB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LCAHU | 20 | 85875 | 2 |
| TIPT | 2 | 1509 | -2 |
| TTI | 9 | 14845 | 0 |
| ACMR | 10 | 10370 | 3 |
| Average | 10.25 | 28150 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $64 million in ASMB’s case. Landcadia Holdings, Inc. (NASDAQ:LCAHU) is the most popular stock in this table. On the other hand Tiptree Inc. (NASDAQ:TIPT) is the least popular one with only 2 bullish hedge fund positions. Assembly Biosciences Inc (NASDAQ:ASMB) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ASMB as the stock returned 65% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
