Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. DRNA was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. There were 16 hedge funds in our database with DRNA holdings at the end of the previous quarter. Our calculations also showed that DRNA 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.
Oleg Nodelman of EcoR1 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 go over the recent hedge fund action encompassing Dicerna Pharmaceuticals Inc (NASDAQ:DRNA).
How have hedgies been trading Dicerna Pharmaceuticals Inc (NASDAQ:DRNA)?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in DRNA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) was held by EcoR1 Capital, which reported holding $56.9 million worth of stock at the end of September. It was followed by Bridger Management with a $38.2 million position. Other investors bullish on the company included Adage Capital Management, RA Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), around 7.19% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, designating 3.15 percent of its 13F equity portfolio to DRNA.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Renaissance Technologies initiated the biggest position in Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). Renaissance Technologies had $7 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also made a $2.4 million investment in the stock during the quarter. The other funds with brand new DRNA positions are Paul Marshall and Ian Wace’s Marshall Wace, David Harding’s Winton Capital Management, and David E. Shaw’s D E Shaw.
Let’s now take a look at hedge fund activity in other stocks similar to Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). We will take a look at Griffon Corporation (NYSE:GFF), Abercrombie & Fitch Co. (NYSE:ANF), Bain Capital Specialty Finance, Inc. (NYSE:BCSF), and Lantheus Holdings Inc (NASDAQ:LNTH). All of these stocks’ market caps are closest to DRNA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GFF | 13 | 131406 | 4 |
| ANF | 19 | 64845 | -7 |
| BCSF | 7 | 38318 | 2 |
| LNTH | 13 | 101269 | -2 |
| Average | 13 | 83960 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $248 million in DRNA’s case. Abercrombie & Fitch Co. (NYSE:ANF) is the most popular stock in this table. On the other hand Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is more popular among hedge funds. 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 DRNA as the stock returned 67.5% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
