How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding SAGE Therapeutics Inc (NASDAQ:SAGE).
SAGE Therapeutics Inc (NASDAQ:SAGE) was in 27 hedge funds’ portfolios at the end of March. The all time high for this statistic is 38. SAGE shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 29 hedge funds in our database with SAGE holdings at the end of December. Our calculations also showed that SAGE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Paul Marshall of Marshall Wace
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery 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. Now let’s take a glance at the fresh hedge fund action regarding SAGE Therapeutics Inc (NASDAQ:SAGE).
Do Hedge Funds Think SAGE Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the fourth quarter of 2020. By comparison, 30 hedge funds held shares or bullish call options in SAGE a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the biggest position in SAGE Therapeutics Inc (NASDAQ:SAGE). D E Shaw has a $140.1 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Palo Alto Investors, which holds a $44.9 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Other peers that hold long positions comprise Paul Marshall and Ian Wace’s Marshall Wace LLP, Jeffrey Jay and David Kroin’s Great Point Partners and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Great Point Partners allocated the biggest weight to SAGE Therapeutics Inc (NASDAQ:SAGE), around 5.91% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, setting aside 3.22 percent of its 13F equity portfolio to SAGE.
Judging by the fact that SAGE Therapeutics Inc (NASDAQ:SAGE) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies that decided to sell off their positions entirely in the first quarter. It’s worth mentioning that Phill Gross and Robert Atchinson’s Adage Capital Management dumped the biggest position of the 750 funds tracked by Insider Monkey, comprising close to $38.2 million in stock. Joseph Edelman’s fund, Perceptive Advisors, also dropped its stock, about $38.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds in the first quarter.
Let’s also examine hedge fund activity in other stocks similar to SAGE Therapeutics Inc (NASDAQ:SAGE). These stocks are 21Vianet Group Inc (NASDAQ:VNET), ChampionX Corporation (NYSE:CHX), The Hain Celestial Group, Inc. (NASDAQ:HAIN), Selective Insurance Group (NASDAQ:SIGI), Quaker Chemical Corp (NYSE:KWR), ICU Medical, Inc. (NASDAQ:ICUI), and WESCO International, Inc. (NYSE:WCC). This group of stocks’ market caps are closest to SAGE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VNET | 30 | 581185 | -3 |
| CHX | 28 | 589002 | -2 |
| HAIN | 23 | 933951 | 0 |
| SIGI | 13 | 60120 | -2 |
| KWR | 18 | 184447 | 5 |
| ICUI | 26 | 381958 | 4 |
| WCC | 28 | 1026615 | 5 |
| Average | 23.7 | 536754 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.7 hedge funds with bullish positions and the average amount invested in these stocks was $537 million. That figure was $401 million in SAGE’s case. 21Vianet Group Inc (NASDAQ:VNET) is the most popular stock in this table. On the other hand Selective Insurance Group (NASDAQ:SIGI) is the least popular one with only 13 bullish hedge fund positions. SAGE Therapeutics Inc (NASDAQ:SAGE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SAGE is 65.5. 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 July 9th and beat the market again by 6.7 percentage points. Unfortunately SAGE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SAGE were disappointed as the stock returned -26.9% since the end of March (through 7/9) 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.
Follow Sage Therapeutics Inc. (NASDAQ:SAGE)
Follow Sage Therapeutics Inc. (NASDAQ:SAGE)
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Disclosure: None. This article was originally published at Insider Monkey.
