We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like EXACT Sciences Corporation (NASDAQ:EXAS).
EXACT Sciences Corporation (NASDAQ:EXAS) was in 35 hedge funds’ portfolios at the end of September. EXAS has seen an increase in hedge fund interest recently. There were 32 hedge funds in our database with EXAS positions at the end of the previous quarter. Our calculations also showed that EXAS 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.
Andreas Halvorsen of Viking Global
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 take a gander at the new hedge fund action surrounding EXACT Sciences Corporation (NASDAQ:EXAS).
Hedge fund activity in EXACT Sciences Corporation (NASDAQ:EXAS)
Heading into the fourth quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the second quarter of 2019. By comparison, 33 hedge funds held shares or bullish call options in EXAS a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Viking Global was the largest shareholder of EXACT Sciences Corporation (NASDAQ:EXAS), with a stake worth $197.5 million reported as of the end of September. Trailing Viking Global was D E Shaw, which amassed a stake valued at $94.8 million. Renaissance Technologies, Citadel Investment Group, and Columbus Circle Investors 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 Atika Capital allocated the biggest weight to EXACT Sciences Corporation (NASDAQ:EXAS), around 1.9% of its portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, setting aside 1.55 percent of its 13F equity portfolio to EXAS.
As industrywide interest jumped, some big names were leading the bulls’ herd. PEAK6 Capital Management, managed by Matthew Hulsizer, created the biggest position in EXACT Sciences Corporation (NASDAQ:EXAS). PEAK6 Capital Management had $5.6 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $5.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Joe DiMenna’s ZWEIG DIMENNA PARTNERS, Carl Tiedemann and Michael Tiedemann’s TIG Advisors, and Matthew Halbower’s Pentwater Capital Management.
Let’s now review hedge fund activity in other stocks similar to EXACT Sciences Corporation (NASDAQ:EXAS). These stocks are Wynn Resorts, Limited (NASDAQ:WYNN), Regency Centers Corp (NASDAQ:REG), Cenovus Energy Inc (NYSE:CVE), and Continental Resources, Inc. (NYSE:CLR). This group of stocks’ market values resemble EXAS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WYNN | 36 | 1171401 | -3 |
| REG | 16 | 233615 | 4 |
| CVE | 25 | 635156 | 8 |
| CLR | 37 | 434858 | 3 |
| Average | 28.5 | 618758 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $619 million. That figure was $586 million in EXAS’s case. Continental Resources, Inc. (NYSE:CLR) is the most popular stock in this table. On the other hand Regency Centers Corp (NASDAQ:REG) is the least popular one with only 16 bullish hedge fund positions. EXACT Sciences Corporation (NASDAQ:EXAS) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately EXAS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EXAS were disappointed as the stock returned -10.4% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
