Hedge Funds Are Cashing Out Of Fate Therapeutics Inc (FATE)

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 Fate Therapeutics Inc (NASDAQ:FATE).

Is Fate Therapeutics Inc (NASDAQ:FATE) a bargain? Hedge funds were in a bearish mood. The number of bullish hedge fund positions were cut by 4 recently. Fate Therapeutics Inc (NASDAQ:FATE) was in 36 hedge funds’ portfolios at the end of September. The all time high for this statistic is 40. Our calculations also showed that FATE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 40 hedge funds in our database with FATE holdings at the end of June.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind let’s analyze the key hedge fund action encompassing Fate Therapeutics Inc (NASDAQ:FATE).

Arthur B Cohen and Joseph Healey of Healthcor Management LP

Do Hedge Funds Think FATE Is A Good Stock To Buy Now?

At Q3’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the second quarter of 2021. By comparison, 34 hedge funds held shares or bullish call options in FATE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Jeremy Green’s Redmile Group has the most valuable position in Fate Therapeutics Inc (NASDAQ:FATE), worth close to $768 million, comprising 13.4% of its total 13F portfolio. The second most bullish fund manager is ARK Investment Management, managed by Catherine D. Wood, which holds a $646.2 million position; 1.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass Eli Casdin’s Casdin Capital, Farallon Capital and Lone Pine Capital. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Fate Therapeutics Inc (NASDAQ:FATE), around 13.39% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, setting aside 8.6 percent of its 13F equity portfolio to FATE.

Seeing as Fate Therapeutics Inc (NASDAQ:FATE) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of hedgies that slashed their entire stakes last quarter. It’s worth mentioning that Vishal Saluja and Pham Quang’s Endurant Capital Management cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $4.4 million in stock. Renaissance Technologies, also sold off its stock, about $3 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Fate Therapeutics Inc (NASDAQ:FATE) but similarly valued. We will take a look at Valvoline Inc. (NYSE:VVV), Harley-Davidson, Inc. (NYSE:HOG), Southwestern Energy Company (NYSE:SWN), Colliers International Group Inc (NASDAQ:CIGI), Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI), Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR), and Paysafe Limited (NYSE:PSFE). All of these stocks’ market caps are closest to FATE’s market cap.

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As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $611 million. That figure was $2103 million in FATE’s case. Paysafe Limited (NYSE:PSFE) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) is the least popular one with only 2 bullish hedge fund positions. Fate Therapeutics Inc (NASDAQ:FATE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FATE is 70.5. 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 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately FATE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FATE were disappointed as the stock returned -7.2% since the end of September (through 11/30) 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.

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Disclosure: None. This article was originally published at Insider Monkey.