It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Sangamo Therapeutics, Inc. (NASDAQ:SGMO).
Sangamo Therapeutics, Inc. (NASDAQ:SGMO) was in 14 hedge funds’ portfolios at the end of the third quarter of 2019. SGMO shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 17 hedge funds in our database with SGMO holdings at the end of the previous quarter. Our calculations also showed that SGMO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Felix Baker of Baker Bros.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the new hedge fund action regarding Sangamo Therapeutics, Inc. (NASDAQ:SGMO).
What have hedge funds been doing with Sangamo Therapeutics, Inc. (NASDAQ:SGMO)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SGMO over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Sangamo Therapeutics, Inc. (NASDAQ:SGMO) was held by Citadel Investment Group, which reported holding $19.8 million worth of stock at the end of September. It was followed by Casdin Capital with a $16.5 million position. Other investors bullish on the company included Baker Bros. Advisors, Bailard Inc, and PDT Partners. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to Sangamo Therapeutics, Inc. (NASDAQ:SGMO), around 1.65% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, earmarking 0.14 percent of its 13F equity portfolio to SGMO.
Due to the fact that Sangamo Therapeutics, Inc. (NASDAQ:SGMO) has faced falling interest from hedge fund managers, it’s safe to say that there exists a select few fund managers that slashed their full holdings last quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors dumped the biggest investment of all the hedgies watched by Insider Monkey, comprising an estimated $2.1 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also sold off its stock, about $0.7 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Sangamo Therapeutics, Inc. (NASDAQ:SGMO). These stocks are KEMET Corporation (NYSE:KEM), Mesa Laboratories, Inc. (NASDAQ:MLAB), Victory Capital Holdings, Inc. (NASDAQ:VCTR), and GasLog Ltd (NYSE:GLOG). This group of stocks’ market caps match SGMO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KEM | 18 | 180934 | 0 |
| MLAB | 8 | 97695 | 0 |
| VCTR | 12 | 48212 | 0 |
| GLOG | 13 | 43502 | 0 |
| Average | 12.75 | 92586 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $56 million in SGMO’s case. KEMET Corporation (NYSE:KEM) is the most popular stock in this table. On the other hand Mesa Laboratories, Inc. (NASDAQ:MLAB) is the least popular one with only 8 bullish hedge fund positions. Sangamo Therapeutics, Inc. (NASDAQ:SGMO) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on SGMO as the stock returned 19.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
