Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Krystal Biotech, Inc. (NASDAQ:KRYS) shareholders have witnessed an increase in support from the world’s most elite money managers lately. KRYS was in 16 hedge funds’ portfolios at the end of the first quarter of 2019. There were 12 hedge funds in our database with KRYS positions at the end of the previous quarter. Our calculations also showed that krys 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.
We’re going to analyze the latest hedge fund action regarding Krystal Biotech, Inc. (NASDAQ:KRYS).
Hedge fund activity in Krystal Biotech, Inc. (NASDAQ:KRYS)
At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KRYS over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Frazier Healthcare Partners was the largest shareholder of Krystal Biotech, Inc. (NASDAQ:KRYS), with a stake worth $28.8 million reported as of the end of March. Trailing Frazier Healthcare Partners was Baker Bros. Advisors, which amassed a stake valued at $25.8 million. Great Point Partners, Redmile Group, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, created the most outsized position in Krystal Biotech, Inc. (NASDAQ:KRYS). Millennium Management had $2.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $2.8 million position during the quarter. The other funds with new positions in the stock are Samuel Isaly’s OrbiMed Advisors, Michael Gelband’s ExodusPoint Capital, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now review hedge fund activity in other stocks similar to Krystal Biotech, Inc. (NASDAQ:KRYS). These stocks are Axsome Therapeutics, Inc. (NASDAQ:AXSM), Mitek Systems, Inc. (NASDAQ:MITK), NVE Corporation (NASDAQ:NVEC), and Flexion Therapeutics Inc (NASDAQ:FLXN). All of these stocks’ market caps are similar to KRYS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXSM | 14 | 92771 | 8 |
| MITK | 21 | 56038 | 6 |
| NVEC | 4 | 14236 | 0 |
| FLXN | 15 | 48039 | 1 |
| Average | 13.5 | 52771 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $113 million in KRYS’s case. Mitek Systems, Inc. (NASDAQ:MITK) is the most popular stock in this table. On the other hand NVE Corporation (NASDAQ:NVEC) is the least popular one with only 4 bullish hedge fund positions. Krystal Biotech, Inc. (NASDAQ:KRYS) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately KRYS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KRYS were disappointed as the stock returned -12.2% during the same period 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 Q2.
Disclosure: None. This article was originally published at Insider Monkey.
