Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same 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 is wise to check hedge fund activity before you invest your time or your savings on a stock like Syros Pharmaceuticals, Inc. (NASDAQ:SYRS).
Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) was in 9 hedge funds’ portfolios at the end of September. SYRS investors should pay attention to a decrease in hedge fund interest in recent months. There were 13 hedge funds in our database with SYRS positions at the end of the previous quarter. Our calculations also showed that SYRS 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.
To most investors, hedge funds are assumed to be slow, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our researchers look at the crème de la crème of this club, around 750 funds. These investment experts shepherd the lion’s share of all hedge funds’ total capital, and by shadowing their matchless equity investments, Insider Monkey has discovered a number of investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
James E. Flynn of Deerfield Management
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 take a gander at the recent hedge fund action regarding Syros Pharmaceuticals, Inc. (NASDAQ:SYRS).
What does smart money think about Syros Pharmaceuticals, Inc. (NASDAQ:SYRS)?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SYRS over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Redmile Group was the largest shareholder of Syros Pharmaceuticals, Inc. (NASDAQ:SYRS), with a stake worth $40.4 million reported as of the end of September. Trailing Redmile Group was Samsara BioCapital, which amassed a stake valued at $17 million. Deerfield Management, Baker Bros. Advisors, and 683 Capital Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Samsara BioCapital allocated the biggest weight to Syros Pharmaceuticals, Inc. (NASDAQ:SYRS), around 11.58% of its 13F portfolio. Redmile Group is also relatively very bullish on the stock, earmarking 1.35 percent of its 13F equity portfolio to SYRS.
Because Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) has witnessed declining sentiment from hedge fund managers, we can see that there exists a select few fund managers who sold off their entire stakes heading into Q4. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group dumped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $2.9 million in stock. Oleg Nodelman’s fund, EcoR1 Capital, also dumped its stock, about $2.3 million worth. These moves are interesting, as total hedge fund interest dropped by 4 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) but similarly valued. We will take a look at Scorpio Bulkers Inc (NYSE:SALT), Tejon Ranch Company (NYSE:TRC), CVR Partners LP (NYSE:UAN), and Replimune Group, Inc. (NASDAQ:REPL). This group of stocks’ market valuations resemble SYRS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SALT | 11 | 26198 | 1 |
| TRC | 12 | 74498 | 2 |
| UAN | 4 | 44172 | 0 |
| REPL | 5 | 68148 | -1 |
| Average | 8 | 53254 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $89 million in SYRS’s case. Tejon Ranch Company (NYSE:TRC) is the most popular stock in this table. On the other hand CVR Partners LP (NYSE:UAN) is the least popular one with only 4 bullish hedge fund positions. Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately SYRS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SYRS were disappointed as the stock returned -50.9% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
