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.
Beyond Air, Inc. (NASDAQ:XAIR) was in 3 hedge funds’ portfolios at the end of the third quarter of 2019. XAIR investors should pay attention to an increase in enthusiasm from smart money lately. There were 2 hedge funds in our database with XAIR holdings at the end of the previous quarter. Our calculations also showed that XAIR 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.
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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Mark Kingdon of Kingdon Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to go over the recent hedge fund action encompassing Beyond Air, Inc. (NASDAQ:XAIR).
How have hedgies been trading Beyond Air, Inc. (NASDAQ:XAIR)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in XAIR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Kingdon Capital was the largest shareholder of Beyond Air, Inc. (NASDAQ:XAIR), with a stake worth $1.8 million reported as of the end of September. Trailing Kingdon Capital was Millennium Management, which amassed a stake valued at $0.3 million. Citadel Investment Group was 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 Kingdon Capital allocated the biggest weight to Beyond Air, Inc. (NASDAQ:XAIR), around 0.22% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.0005 percent of its 13F equity portfolio to XAIR.
As industrywide interest jumped, key hedge funds have jumped into Beyond Air, Inc. (NASDAQ:XAIR) headfirst. Kingdon Capital, managed by Mark Kingdon, created the most valuable position in Beyond Air, Inc. (NASDAQ:XAIR). Kingdon Capital had $1.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is Ken Griffin’s Citadel Investment Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Beyond Air, Inc. (NASDAQ:XAIR) but similarly valued. These stocks are Vascular Biogenics Ltd. (NASDAQ:VBLT), Forward Pharma A/S (NASDAQ:FWP), Remark Holdings, Inc. (NASDAQ:MARK), and Soleno Therapeutics, Inc. (NASDAQ:SLNO). This group of stocks’ market values resemble XAIR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VBLT | 3 | 217 | 0 |
| FWP | 3 | 9895 | 0 |
| MARK | 3 | 2964 | 1 |
| SLNO | 5 | 8308 | 0 |
| Average | 3.5 | 5346 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $2 million in XAIR’s case. Soleno Therapeutics, Inc. (NASDAQ:SLNO) is the most popular stock in this table. On the other hand Vascular Biogenics Ltd. (NASDAQ:VBLT) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Beyond Air, Inc. (NASDAQ:XAIR) is even less popular than VBLT. 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. A small number of hedge funds were also right about betting on XAIR, though not to the same extent, as the stock returned 7.6% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.