We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds’ top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Sesen Bio, Inc. (NASDAQ:SESN) a sound stock to buy now? Investors who are in the know are becoming less hopeful. The number of long hedge fund positions went down by 2 recently. Our calculations also showed that SESN isn’t among the 30 most popular stocks among hedge funds. SESN was in 3 hedge funds’ portfolios at the end of the third quarter of 2019. There were 5 hedge funds in our database with SESN 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 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.
Mark Kingdon of Kingdon Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the latest hedge fund action regarding Sesen Bio, Inc. (NASDAQ:SESN).
How are hedge funds trading Sesen Bio, Inc. (NASDAQ:SESN)?
At Q3’s end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in SESN a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Sesen Bio, Inc. (NASDAQ:SESN) was held by Kingdon Capital, which reported holding $7.2 million worth of stock at the end of September. It was followed by Alyeska Investment Group with a $1.6 million position. The only other hedge fund that is bullish on the company was Winton Capital Management.
Since Sesen Bio, Inc. (NASDAQ:SESN) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers who sold off their entire stakes heading into Q4. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling about $2 million in stock, and David E. Shaw’s D E Shaw was right behind this move, as the fund dumped about $0 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sesen Bio, Inc. (NASDAQ:SESN) but similarly valued. We will take a look at Information Services Group, Inc. (NASDAQ:III), Lee Enterprises, Incorporated (NYSE:LEE), Chicken Soup for the Soul Entertainment, Inc. (NASDAQ:CSSE), and Flexsteel Industries, Inc. (NASDAQ:FLXS). This group of stocks’ market caps resemble SESN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| III | 5 | 20966 | 0 |
| LEE | 12 | 11311 | 2 |
| CSSE | 1 | 3245 | 0 |
| FLXS | 7 | 19339 | 1 |
| Average | 6.25 | 13715 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $7 million in SESN’s case. Lee Enterprises, Incorporated (NYSE:LEE) is the most popular stock in this table. On the other hand Chicken Soup for the Soul Entertainment, Inc. (NASDAQ:CSSE) is the least popular one with only 1 bullish hedge fund positions. Sesen Bio, Inc. (NASDAQ:SESN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately SESN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SESN investors were disappointed as the stock returned -2.1% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.