We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Xencor Inc (NASDAQ:XNCR)? The smart money sentiment can provide an answer to this question.
Is Xencor Inc (NASDAQ:XNCR) a healthy stock for your portfolio? The smart money is becoming hopeful. The number of long hedge fund positions went up by 2 in recent months. Our calculations also showed that XNCR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). XNCR was in 16 hedge funds’ portfolios at the end of December. There were 14 hedge funds in our database with XNCR holdings at the end of the previous quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Oleg Nodelman of EcoR1 Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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. Now let’s analyze the key hedge fund action encompassing Xencor Inc (NASDAQ:XNCR).
What have hedge funds been doing with Xencor Inc (NASDAQ:XNCR)?
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards XNCR over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, EcoR1 Capital held the most valuable stake in Xencor Inc (NASDAQ:XNCR), which was worth $68.1 million at the end of the third quarter. On the second spot was Baker Bros. Advisors which amassed $14.7 million worth of shares. Winton Capital Management, GLG Partners, and Millennium Management were 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 EcoR1 Capital allocated the biggest weight to Xencor Inc (NASDAQ:XNCR), around 6.24% of its 13F portfolio. Birchview Capital is also relatively very bullish on the stock, earmarking 0.31 percent of its 13F equity portfolio to XNCR.
Now, key money managers were leading the bulls’ herd. Parkman Healthcare Partners, managed by Greg Martinez, created the most outsized position in Xencor Inc (NASDAQ:XNCR). Parkman Healthcare Partners had $0.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Jinghua Yan’s TwinBeech Capital, and Michael Gelband’s ExodusPoint Capital.
Let’s also examine hedge fund activity in other stocks similar to Xencor Inc (NASDAQ:XNCR). These stocks are Redfin Corporation (NASDAQ:RDFN), Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), ProAssurance Corporation (NYSE:PRA), and Four Corners Property Trust, Inc. (NYSE:FCPT). This group of stocks’ market valuations resemble XNCR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RDFN | 15 | 140093 | -1 |
| MNTA | 33 | 553006 | 15 |
| PRA | 18 | 189428 | 3 |
| FCPT | 15 | 91164 | -3 |
| Average | 20.25 | 243423 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $107 million in XNCR’s case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand Redfin Corporation (NASDAQ:RDFN) is the least popular one with only 15 bullish hedge fund positions. Xencor Inc (NASDAQ:XNCR) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on XNCR as the stock returned -7.9% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
