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.
Natera Inc (NASDAQ:NTRA) investors should be aware of an increase in enthusiasm from smart money of late. Our calculations also showed that NTRA isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the latest hedge fund action surrounding Natera Inc (NASDAQ:NTRA).
How have hedgies been trading Natera Inc (NASDAQ:NTRA)?
At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NTRA over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, OrbiMed Advisors was the largest shareholder of Natera Inc (NASDAQ:NTRA), with a stake worth $88.9 million reported as of the end of March. Trailing OrbiMed Advisors was Millennium Management, which amassed a stake valued at $58 million. Deerfield Management, Driehaus Capital, and Hudson Executive Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key hedge funds have jumped into Natera Inc (NASDAQ:NTRA) headfirst. Driehaus Capital, managed by Richard Driehaus, initiated the most valuable position in Natera Inc (NASDAQ:NTRA). Driehaus Capital had $18.2 million invested in the company at the end of the quarter. Douglas Braunstein and James Woolery’s Hudson Executive Capital also made a $10.4 million investment in the stock during the quarter. The other funds with brand new NTRA positions are David Rosen’s Rubric Capital Management, Michael Castor’s Sio Capital, and Benjamin A. Smith’s Laurion Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Natera Inc (NASDAQ:NTRA) but similarly valued. These stocks are NovaGold Resources Inc. (NYSE:NG), Comfort Systems USA, Inc. (NYSE:FIX), Flagstar Bancorp Inc (NYSE:FBC), and Ameris Bancorp (NASDAQ:ABCB). All of these stocks’ market caps are closest to NTRA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NG | 10 | 206617 | -3 |
| FIX | 23 | 102393 | -5 |
| FBC | 15 | 64461 | 1 |
| ABCB | 16 | 122661 | -1 |
| Average | 16 | 124033 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $243 million in NTRA’s case. Comfort Systems USA, Inc. (NYSE:FIX) is the most popular stock in this table. On the other hand NovaGold Resources Inc. (NYSE:NG) is the least popular one with only 10 bullish hedge fund positions. Natera Inc (NASDAQ:NTRA) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on NTRA as the stock returned 18.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
