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 Dicerna Pharmaceuticals Inc (NASDAQ:DRNA).
Hedge fund interest in Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DRNA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare DRNA to other stocks including Maxar Technologies Inc (NYSE:MAXR), Badger Meter, Inc. (NYSE:BMI), and Youdao, Inc. (NYSE:DAO) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s take a look at the key hedge fund action surrounding Dicerna Pharmaceuticals Inc (NASDAQ:DRNA).
Do Hedge Funds Think DRNA Is A Good Stock To Buy Now?
At second quarter’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DRNA over the last 24 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) was held by Aquilo Capital Management, which reported holding $67.7 million worth of stock at the end of June. It was followed by Maverick Capital with a $48.8 million position. Other investors bullish on the company included Polar Capital, Woodline Partners, and Perceptive Advisors. In terms of the portfolio weights assigned to each position Aquilo Capital Management allocated the biggest weight to Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), around 17.58% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, dishing out 3.99 percent of its 13F equity portfolio to DRNA.
Due to the fact that Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies who were dropping their full holdings by the end of the second quarter. It’s worth mentioning that Roberto Mignone’s Bridger Management dumped the largest stake of all the hedgies tracked by Insider Monkey, totaling about $15.1 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital) was right behind this move, as the fund dropped about $0.9 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 now take a look at hedge fund activity in other stocks similar to Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). We will take a look at Maxar Technologies Inc (NYSE:MAXR), Badger Meter, Inc. (NYSE:BMI), Youdao, Inc. (NYSE:DAO), Atlantic Union Bankshares Corporation (NASDAQ:AUB), Comfort Systems USA, Inc. (NYSE:FIX), Abercrombie & Fitch Co. (NYSE:ANF), and Mr. Cooper Group Inc. (NASDAQ:COOP). This group of stocks’ market caps match DRNA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MAXR | 15 | 247316 | -7 |
| BMI | 19 | 186911 | -1 |
| DAO | 5 | 331884 | -4 |
| AUB | 12 | 45592 | 1 |
| FIX | 24 | 80650 | 5 |
| ANF | 32 | 564862 | 12 |
| COOP | 28 | 660134 | 4 |
| Average | 19.3 | 302478 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $377 million in DRNA’s case. Abercrombie & Fitch Co. (NYSE:ANF) is the most popular stock in this table. On the other hand Youdao, Inc. (NYSE:DAO) is the least popular one with only 5 bullish hedge fund positions. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DRNA is 68.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately DRNA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DRNA were disappointed as the stock returned -43.1% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Dicerna Pharmaceuticals Inc (NASDAQ:DRNA)
Follow Dicerna Pharmaceuticals Inc (NASDAQ:DRNA)
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Disclosure: None. This article was originally published at Insider Monkey.
