Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in Soleno Therapeutics, Inc. (NASDAQ:SLNO) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SLNO to other stocks including Mid-Southern Bancorp, Inc. (NASDAQ:MSVB), PFSweb, Inc. (NASDAQ:PFSW), and Build-A-Bear Workshop, Inc (NYSE:BBW) to get a better sense of its popularity.
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a gander at the recent hedge fund action regarding Soleno Therapeutics, Inc. (NASDAQ:SLNO).
How are hedge funds trading Soleno Therapeutics, Inc. (NASDAQ:SLNO)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SLNO over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Vivo Capital held the most valuable stake in Soleno Therapeutics, Inc. (NASDAQ:SLNO), which was worth $6.4 million at the end of the third quarter. On the second spot was 683 Capital Partners which amassed $0.9 million worth of shares. Trellus Management Company, Birchview Capital, and Renaissance Technologies 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 Vivo Capital allocated the biggest weight to Soleno Therapeutics, Inc. (NASDAQ:SLNO), around 0.73% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, setting aside 0.45 percent of its 13F equity portfolio to SLNO.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now review hedge fund activity in other stocks similar to Soleno Therapeutics, Inc. (NASDAQ:SLNO). We will take a look at Mid-Southern Bancorp, Inc. (NASDAQ:MSVB), PFSweb, Inc. (NASDAQ:PFSW), Build-A-Bear Workshop, Inc (NYSE:BBW), and Edesa Biotech, Inc. (NASDAQ:EDSA). This group of stocks’ market caps resemble SLNO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSVB | 5 | 5584 | 0 |
| PFSW | 6 | 5448 | 1 |
| BBW | 12 | 9450 | 1 |
| EDSA | 1 | 98 | 0 |
| Average | 6 | 5145 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $8 million in SLNO’s case. Build-A-Bear Workshop, Inc (NYSE:BBW) is the most popular stock in this table. On the other hand Edesa Biotech, Inc. (NASDAQ:EDSA) is the least popular one with only 1 bullish hedge fund positions. Soleno Therapeutics, Inc. (NASDAQ:SLNO) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on SLNO as the stock returned 15.3% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
