Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Harpoon Therapeutics, Inc. (NASDAQ:HARP) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the second quarter of 2019. At the end of this article we will also compare HARP to other stocks including Oxford Square Capital Corp. (NASDAQ:OXSQ), The Cato Corporation (NYSE:CATO), and Graf Industrial Corp. (NYSE:GRAF) 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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we’re going to take a glance at the key hedge fund action encompassing Harpoon Therapeutics, Inc. (NASDAQ:HARP).
What does smart money think about Harpoon Therapeutics, Inc. (NASDAQ:HARP)?
At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in HARP a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, OrbiMed Advisors was the largest shareholder of Harpoon Therapeutics, Inc. (NASDAQ:HARP), with a stake worth $31.8 million reported as of the end of March. Trailing OrbiMed Advisors was EcoR1 Capital, which amassed a stake valued at $17.5 million. Cormorant Asset Management, Deerfield Management, and Baker Bros. Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
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 second 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 also examine hedge fund activity in other stocks similar to Harpoon Therapeutics, Inc. (NASDAQ:HARP). We will take a look at Oxford Square Capital Corp. (NASDAQ:OXSQ), The Cato Corporation (NYSE:CATO), Graf Industrial Corp. (NYSE:GRAF), and South Plains Financial, Inc. (NASDAQ:SPFI). This group of stocks’ market values resemble HARP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OXSQ | 5 | 8208 | -1 |
| CATO | 18 | 26029 | 6 |
| GRAF | 12 | 54469 | 0 |
| SPFI | 8 | 11760 | 8 |
| Average | 10.75 | 25117 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $64 million in HARP’s case. The Cato Corporation (NYSE:CATO) is the most popular stock in this table. On the other hand Oxford Square Capital Corp. (NASDAQ:OXSQ) is the least popular one with only 5 bullish hedge fund positions. Harpoon Therapeutics, Inc. (NASDAQ:HARP) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on HARP, though not to the same extent, as the stock returned 5.1% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.