Hedge Funds Aren’t Crazy About bluebird bio Inc (BLUE) Anymore

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding bluebird bio Inc (NASDAQ:BLUE).

bluebird bio Inc (NASDAQ:BLUE) has experienced a decrease in support from the world’s most elite money managers of late. bluebird bio Inc (NASDAQ:BLUE) was in 24 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 38. There were 27 hedge funds in our database with BLUE holdings at the end of March. Our calculations also showed that BLUE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

James E. Flynn of Deerfield Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks 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. With all of this in mind we’re going to view the recent hedge fund action surrounding bluebird bio Inc (NASDAQ:BLUE).

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

At the end of June, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BLUE over the last 24 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Armistice Capital held the most valuable stake in bluebird bio Inc (NASDAQ:BLUE), which was worth $58.7 million at the end of the second quarter. On the second spot was Suvretta Capital Management which amassed $40.1 million worth of shares. Sessa Capital, Point72 Asset Management, and Deerfield Management 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 Sessa Capital allocated the biggest weight to bluebird bio Inc (NASDAQ:BLUE), around 1.44% of its 13F portfolio. Birchview Capital is also relatively very bullish on the stock, setting aside 1.42 percent of its 13F equity portfolio to BLUE.

Judging by the fact that bluebird bio Inc (NASDAQ:BLUE) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers who sold off their full holdings last quarter. At the top of the heap, Stephen DuBois’s Camber Capital Management sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at about $30.2 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund said goodbye to about $4.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as bluebird bio Inc (NASDAQ:BLUE) but similarly valued. These stocks are Clean Energy Fuels Corp (NASDAQ:CLNE), Newmark Group, Inc. (NASDAQ:NMRK), HeadHunter Group PLC (NASDAQ:HHR), Danimer Scientific, Inc. (NYSE:DNMR), Talend S.A. (NASDAQ:TLND), Sykes Enterprises, Incorporated (NASDAQ:SYKE), and Xenia Hotels & Resorts Inc (NYSE:XHR). This group of stocks’ market valuations resemble BLUE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $221 million in BLUE’s case. Talend S.A. (NASDAQ:TLND) is the most popular stock in this table. On the other hand Xenia Hotels & Resorts Inc (NYSE:XHR) is the least popular one with only 5 bullish hedge fund positions. bluebird bio Inc (NASDAQ:BLUE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BLUE is 51.6. 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 BLUE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BLUE were disappointed as the stock returned -35% 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.