Did Hedge Funds Make The Right Call On MyoKardia, Inc. (MYOK) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards MyoKardia, Inc. (NASDAQ:MYOK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

MyoKardia, Inc. (NASDAQ:MYOK) shareholders have witnessed an increase in hedge fund interest in recent months. MYOK was in 33 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with MYOK positions at the end of the previous quarter. Our calculations also showed that MYOK 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.

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 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.

Felix Baker of Baker Bros.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. With all of this in mind let’s take a look at the latest hedge fund action regarding MyoKardia, Inc. (NASDAQ:MYOK).

Hedge fund activity in MyoKardia, Inc. (NASDAQ:MYOK)

Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in MYOK a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in MyoKardia, Inc. (NASDAQ:MYOK) was held by Baker Bros. Advisors, which reported holding $83.2 million worth of stock at the end of September. It was followed by Avoro Capital Advisors (venBio Select Advisor) with a $67.3 million position. Other investors bullish on the company included Perceptive Advisors, Casdin Capital, and Hillhouse Capital Management. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to MyoKardia, Inc. (NASDAQ:MYOK), around 28.77% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, setting aside 5.35 percent of its 13F equity portfolio to MYOK.

Now, some big names were breaking ground themselves. Great Point Partners, managed by Jeffrey Jay and David Kroin, initiated the biggest position in MyoKardia, Inc. (NASDAQ:MYOK). Great Point Partners had $17.1 million invested in the company at the end of the quarter. Albert Cha and Frank Kung’s Vivo Capital also initiated a $15.6 million position during the quarter. The other funds with brand new MYOK positions are John Overdeck and David Siegel’s Two Sigma Advisors, Henrik Rhenman’s Rhenman & Partners Asset Management, and Israel Englander’s Millennium Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as MyoKardia, Inc. (NASDAQ:MYOK) but similarly valued. We will take a look at GrafTech International Ltd. (NYSE:EAF), Allakos Inc. (NASDAQ:ALLK), Cohen & Steers, Inc. (NYSE:CNS), and Rapid7 Inc (NASDAQ:RPD). This group of stocks’ market values are similar to MYOK’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $562 million in MYOK’s case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks MyoKardia, Inc. (NASDAQ:MYOK) 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 MYOK as the stock returned 106.1% 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.