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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Evelo Biosciences, Inc. (NASDAQ:EVLO).
Evelo Biosciences, Inc. (NASDAQ:EVLO) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of March. At the end of this article we will also compare EVLO to other stocks including County Bancorp, Inc. (NASDAQ:ICBK), Farmer Brothers Co. (NASDAQ:FARM), and Affimed NV (NASDAQ:AFMD) to get a better sense of its popularity.
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 44 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.
Israel Englander of Millennium Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the new hedge fund action encompassing Evelo Biosciences, Inc. (NASDAQ:EVLO).
Hedge fund activity in Evelo Biosciences, Inc. (NASDAQ:EVLO)
At Q1’s end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EVLO over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Evelo Biosciences, Inc. (NASDAQ:EVLO), with a stake worth $0.1 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $0 million. Citadel Investment Group was 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 Renaissance Technologies allocated the biggest weight to Evelo Biosciences, Inc. (NASDAQ:EVLO), around 0.0001% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, setting aside 0.0001 percent of its 13F equity portfolio to EVLO.
Due to the fact that Evelo Biosciences, Inc. (NASDAQ:EVLO) has experienced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of money managers who sold off their full holdings by the end of the third quarter. It’s worth mentioning that Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management dumped the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $2.6 million in stock. Nathan Fischel’s fund, DAFNA Capital Management, also dropped its stock, about $0 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Evelo Biosciences, Inc. (NASDAQ:EVLO) but similarly valued. We will take a look at County Bancorp, Inc. (NASDAQ:ICBK), Farmer Brothers Co. (NASDAQ:FARM), Affimed NV (NASDAQ:AFMD), and Altisource Portfolio Solutions S.A. (NASDAQ:ASPS). All of these stocks’ market caps are closest to EVLO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ICBK | 5 | 8535 | -2 |
| FARM | 16 | 39910 | 4 |
| AFMD | 16 | 21432 | 3 |
| ASPS | 8 | 7589 | 1 |
| Average | 11.25 | 19367 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $0 million in EVLO’s case. Farmer Brothers Co. (NASDAQ:FARM) is the most popular stock in this table. On the other hand County Bancorp, Inc. (NASDAQ:ICBK) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Evelo Biosciences, Inc. (NASDAQ:EVLO) is even less popular than ICBK. Hedge funds dodged a bullet by taking a bearish stance towards EVLO. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately EVLO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); EVLO investors were disappointed as the stock returned 14.2% during the second quarter (through May 22nd) 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 so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.
