The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Denali Therapeutics Inc. (NASDAQ:DNLI) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is Denali Therapeutics Inc. (NASDAQ:DNLI) a bargain? The smart money was in an optimistic mood. The number of long hedge fund bets moved up by 7 lately. Denali Therapeutics Inc. (NASDAQ:DNLI) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 14. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DNLI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s take a glance at the new hedge fund action surrounding Denali Therapeutics Inc. (NASDAQ:DNLI).
How are hedge funds trading Denali Therapeutics Inc. (NASDAQ:DNLI)?
At second quarter’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the first quarter of 2020. By comparison, 9 hedge funds held shares or bullish call options in DNLI a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Denali Therapeutics Inc. (NASDAQ:DNLI) was held by Casdin Capital, which reported holding $31.7 million worth of stock at the end of September. It was followed by Perceptive Advisors with a $20.6 million position. Other investors bullish on the company included EcoR1 Capital, Great Point Partners, and Mark Asset Management. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to Denali Therapeutics Inc. (NASDAQ:DNLI), around 1.87% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, dishing out 1.31 percent of its 13F equity portfolio to DNLI.
Now, key hedge funds have jumped into Denali Therapeutics Inc. (NASDAQ:DNLI) headfirst. Great Point Partners, managed by Jeffrey Jay and David Kroin, initiated the most outsized position in Denali Therapeutics Inc. (NASDAQ:DNLI). Great Point Partners had $6.8 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.9 million investment in the stock during the quarter. The following funds were also among the new DNLI investors: Israel Englander’s Millennium Management, Mika Toikka’s AlphaCrest Capital Management, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Denali Therapeutics Inc. (NASDAQ:DNLI) but similarly valued. These stocks are Artisan Partners Asset Management Inc (NYSE:APAM), Tripadvisor Inc (NASDAQ:TRIP), Canada Goose Holdings Inc. (NYSE:GOOS), PotlatchDeltic Corporation (NASDAQ:PCH), Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Benitec Biopharma Limited (NASDAQ:BNTC), and Home Bancshares Inc (NASDAQ:HOMB). All of these stocks’ market caps are closest to DNLI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APAM | 21 | 262058 | 1 |
| TRIP | 28 | 641358 | -2 |
| GOOS | 20 | 136796 | -6 |
| PCH | 22 | 278277 | 6 |
| TARO | 10 | 72222 | 1 |
| BNTC | 1 | 94 | 0 |
| HOMB | 14 | 30035 | -6 |
| Average | 16.6 | 202977 | -0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $100 million in DNLI’s case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand Benitec Biopharma Limited (NASDAQ:BNTC) is the least popular one with only 1 bullish hedge fund positions. Denali Therapeutics Inc. (NASDAQ:DNLI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DNLI is 77. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on DNLI as the stock returned 48.2% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
