The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31 holdings, data that is available nowhere else. Should you consider Denali Therapeutics Inc. (NASDAQ:DNLI) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Denali Therapeutics Inc. (NASDAQ:DNLI) has experienced an increase in support from the world’s most elite money managers in recent months. DNLI was in 10 hedge funds’ portfolios at the end of the first quarter of 2019. There were 5 hedge funds in our database with DNLI positions at the end of the previous quarter. Our calculations also showed that DNLI isn’t among the 30 most popular stocks among hedge funds.
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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s go over the latest hedge fund action encompassing Denali Therapeutics Inc. (NASDAQ:DNLI).
Hedge fund activity in Denali Therapeutics Inc. (NASDAQ:DNLI)
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DNLI over the last 15 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Casdin Capital was the largest shareholder of Denali Therapeutics Inc. (NASDAQ:DNLI), with a stake worth $2.3 million reported as of the end of March. Trailing Casdin Capital was Mark Asset Management, which amassed a stake valued at $1.6 million. Arrowstreet Capital, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Denali Therapeutics Inc. (NASDAQ:DNLI). Arrowstreet Capital had $1.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks similar to Denali Therapeutics Inc. (NASDAQ:DNLI). These stocks are Nelnet, Inc. (NYSE:NNI), Appian Corporation (NASDAQ:APPN), Shenandoah Telecommunications Company (NASDAQ:SHEN), and The Cheesecake Factory Incorporated (NASDAQ:CAKE). This group of stocks’ market caps resemble DNLI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NNI | 15 | 77013 | 1 |
| APPN | 19 | 331791 | 10 |
| SHEN | 14 | 100597 | 3 |
| CAKE | 25 | 219156 | 4 |
| Average | 18.25 | 182139 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $8 million in DNLI’s case. The Cheesecake Factory Incorporated (NASDAQ:CAKE) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Denali Therapeutics Inc. (NASDAQ:DNLI) is even less popular than SHEN. Hedge funds dodged a bullet by taking a bearish stance towards DNLI. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately DNLI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DNLI investors were disappointed as the stock returned -14.2% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
