It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Sutro Biopharma, Inc. (NASDAQ:STRO).
Sutro Biopharma, Inc. (NASDAQ:STRO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare STRO to other stocks including Kamada Ltd (NASDAQ:KMDA), Asanko Gold Inc (NYSEAMERICAN:AKG), and Chiasma Inc (NASDAQ:CHMA) 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.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Chuck Royce of Royce & Associates
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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a glance at the fresh hedge fund action regarding Sutro Biopharma, Inc. (NASDAQ:STRO).
Hedge fund activity in Sutro Biopharma, Inc. (NASDAQ:STRO)
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in STRO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the number one position in Sutro Biopharma, Inc. (NASDAQ:STRO). Citadel Investment Group has a $15.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Samsara BioCapital, managed by Srini Akkaraju and Michael Dybbs, which holds a $10.2 million position; the fund has 7% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Stephen DuBois’s Camber Capital Management, Mark Lampert’s Biotechnology Value Fund and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Samsara BioCapital allocated the biggest weight to Sutro Biopharma, Inc. (NASDAQ:STRO), around 6.96% of its 13F portfolio. Biotechnology Value Fund is also relatively very bullish on the stock, designating 0.33 percent of its 13F equity portfolio to STRO.
Seeing as Sutro Biopharma, Inc. (NASDAQ:STRO) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedge funds that decided to sell off their full holdings last quarter. Interestingly, Michael Castor’s Sio Capital dumped the biggest position of the 750 funds followed by Insider Monkey, worth close to $3.9 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $3.7 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Sutro Biopharma, Inc. (NASDAQ:STRO). We will take a look at Kamada Ltd (NASDAQ:KMDA), Asanko Gold Inc (NYSEAMERICAN:AKG), Chiasma Inc (NASDAQ:CHMA), and KalVista Pharmaceuticals, Inc. (NASDAQ:KALV). This group of stocks’ market valuations match STRO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KMDA | 3 | 4461 | 0 |
| AKG | 5 | 28345 | -1 |
| CHMA | 11 | 52816 | 4 |
| KALV | 15 | 59982 | 0 |
| Average | 8.5 | 36401 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $39 million in STRO’s case. KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) is the most popular stock in this table. On the other hand Kamada Ltd (NASDAQ:KMDA) is the least popular one with only 3 bullish hedge fund positions. Sutro Biopharma, Inc. (NASDAQ:STRO) 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 STRO as the stock returned 21.9% 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.
