Hedge Funds Are Cashing Out Of KalVista Pharmaceuticals, Inc. (KALV)

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards KalVista Pharmaceuticals, Inc. (NASDAQ:KALV).

KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistic is 23. There were 23 hedge funds in our database with KALV positions at the end of the first quarter. Our calculations also showed that KALV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by 79 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 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.

James E. Flynn of Deerfield Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this stock pitch. We go through lists like the 10 best growth stocks to buy 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. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing KalVista Pharmaceuticals, Inc. (NASDAQ:KALV).

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

At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in KALV a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) was held by Deerfield Management, which reported holding $51.8 million worth of stock at the end of June. It was followed by RA Capital Management with a $46.3 million position. Other investors bullish on the company included Vivo Capital, Suvretta Capital Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Prosight Capital allocated the biggest weight to KalVista Pharmaceuticals, Inc. (NASDAQ:KALV), around 2.71% of its 13F portfolio. Stonepine Capital is also relatively very bullish on the stock, setting aside 2.51 percent of its 13F equity portfolio to KALV.

Since KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who were dropping their entire stakes last quarter. Interestingly, Bihua Chen’s Cormorant Asset Management sold off the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth an estimated $19.3 million in stock, and Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund was right behind this move, as the fund dumped about $6.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) but similarly valued. These stocks are Hanmi Financial Corp (NASDAQ:HAFC), Dorchester Minerals LP (NASDAQ:DMLP), Chicken Soup for the Soul Entertainment, Inc. (NASDAQ:CSSE), Peoples Bancorp Inc. (NASDAQ:PEBO), International Money Express, Inc. (NASDAQ:IMXI), Dorian LPG Ltd (NYSE:LPG), and Eros STX Global Corporation (NYSE:ESGC). This group of stocks’ market values match KALV’s market value.

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As you can see these stocks had an average of 10.9 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $235 million in KALV’s case. Dorian LPG Ltd (NYSE:LPG) is the most popular stock in this table. On the other hand Dorchester Minerals LP (NASDAQ:DMLP) is the least popular one with only 4 bullish hedge fund positions. KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KALV is 75.8. 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% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately KALV wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KALV were disappointed as the stock returned -29.9% since the end of June (through 10/22) 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.