Did Hedge Funds Make The Right Call On AnaptysBio, Inc. (ANAB) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded AnaptysBio, Inc. (NASDAQ:ANAB) and determine whether the smart money was really smart about this stock.

Is AnaptysBio, Inc. (NASDAQ:ANAB) ready to rally soon? Money managers were taking a bearish view. The number of long hedge fund bets fell by 2 lately. Our calculations also showed that ANAB 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). ANAB was in 25 hedge funds’ portfolios at the end of March. There were 27 hedge funds in our database with ANAB positions at the end of the previous quarter.

Video: 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 S&P 500 ETFs by more than 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 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.

Kevin Kotler of Broadfin Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a look at the latest hedge fund action encompassing AnaptysBio, Inc. (NASDAQ:ANAB).

Hedge fund activity in AnaptysBio, Inc. (NASDAQ:ANAB)

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the fourth quarter of 2019. By comparison, 20 hedge funds held shares or bullish call options in ANAB a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, EcoR1 Capital held the most valuable stake in AnaptysBio, Inc. (NASDAQ:ANAB), which was worth $42.9 million at the end of the third quarter. On the second spot was Frazier Healthcare Partners which amassed $32.7 million worth of shares. Tang Capital Management, Biotechnology Value Fund / BVF Inc, and Aquilo Capital 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 Aquilo Capital Management allocated the biggest weight to AnaptysBio, Inc. (NASDAQ:ANAB), around 7.92% of its 13F portfolio. Tang Capital Management is also relatively very bullish on the stock, setting aside 4.55 percent of its 13F equity portfolio to ANAB.

Because AnaptysBio, Inc. (NASDAQ:ANAB) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds who sold off their entire stakes heading into Q4. Interestingly, Kevin Kotler’s Broadfin Capital sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $3.6 million in stock, and Neil Shahrestani’s Ikarian Capital was right behind this move, as the fund dropped about $2.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to AnaptysBio, Inc. (NASDAQ:ANAB). These stocks are The Marcus Corporation (NYSE:MCS), Par Pacific Holdings, Inc. (NYSE:PARR), Independence Holding Company (NYSE:IHC), and Hawkins, Inc. (NASDAQ:HWKN). All of these stocks’ market caps are closest to ANAB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $232 million in ANAB’s case. Par Pacific Holdings, Inc. (NYSE:PARR) is the most popular stock in this table. On the other hand Independence Holding Company (NYSE:IHC) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks AnaptysBio, Inc. (NASDAQ:ANAB) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ANAB as the stock returned 58.1% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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