How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Selecta Biosciences, Inc. (NASDAQ:SELB) and determine whether hedge funds had an edge regarding this stock.
Selecta Biosciences, Inc. (NASDAQ:SELB) was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. SELB has seen an increase in support from the world’s most elite money managers recently. There were 13 hedge funds in our database with SELB holdings at the end of the previous quarter. Our calculations also showed that SELB 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Nathaniel August of Mangrove Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing Selecta Biosciences, Inc. (NASDAQ:SELB).
How have hedgies been trading Selecta Biosciences, Inc. (NASDAQ:SELB)?
Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 62% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SELB over the last 18 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 publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Albert Cha and Frank Kung’s Vivo Capital has the biggest position in Selecta Biosciences, Inc. (NASDAQ:SELB), worth close to $18.9 million, accounting for 1.7% of its total 13F portfolio. Sitting at the No. 2 spot is Nathaniel August of Mangrove Partners, with a $13.4 million position; 1.8% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism encompass Oleg Nodelman’s EcoR1 Capital, Mark Lampert’s Biotechnology Value Fund / BVF Inc and Samuel Isaly’s OrbiMed Advisors. In terms of the portfolio weights assigned to each position Acuta Capital Partners allocated the biggest weight to Selecta Biosciences, Inc. (NASDAQ:SELB), around 2.76% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, earmarking 1.84 percent of its 13F equity portfolio to SELB.
Now, key hedge funds have been driving this bullishness. Acuta Capital Partners, managed by Manfred Yu, created the biggest position in Selecta Biosciences, Inc. (NASDAQ:SELB). Acuta Capital Partners had $5.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $4.1 million position during the quarter. The other funds with brand new SELB positions are Arsani William’s Logos Capital, Peter Kolchinsky’s RA Capital Management, and Steve Cohen’s Point72 Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Selecta Biosciences, Inc. (NASDAQ:SELB) but similarly valued. We will take a look at Gravity Co., LTD. (NASDAQ:GRVY), Sierra Wireless, Inc. (NASDAQ:SWIR), Old Second Bancorp Inc. (NASDAQ:OSBC), and Noodles & Co (NASDAQ:NDLS). This group of stocks’ market valuations are closest to SELB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GRVY | 4 | 2026 | -1 |
| SWIR | 9 | 52739 | -3 |
| OSBC | 11 | 16347 | 0 |
| NDLS | 14 | 52490 | -2 |
| Average | 9.5 | 30901 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $95 million in SELB’s case. Noodles & Co (NASDAQ:NDLS) is the most popular stock in this table. On the other hand Gravity Co., LTD. (NASDAQ:GRVY) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Selecta Biosciences, Inc. (NASDAQ:SELB) 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 gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately SELB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SELB were disappointed as the stock returned 4.6% since the end of the first quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
