We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Magenta Therapeutics, Inc. (NASDAQ:MGTA) and determine whether hedge funds skillfully traded this stock.
Magenta Therapeutics, Inc. (NASDAQ:MGTA) investors should pay attention to an increase in support from the world’s most elite money managers of late. Magenta Therapeutics, Inc. (NASDAQ:MGTA) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 14. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MGTA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are numerous metrics investors employ to appraise stocks. A pair of the most underrated metrics are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the elite fund managers can outperform the S&P 500 by a very impressive margin (see the details here).
William Leland Edwards of Palo Alto Investors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s go over the recent hedge fund action regarding Magenta Therapeutics, Inc. (NASDAQ:MGTA).
How are hedge funds trading Magenta Therapeutics, Inc. (NASDAQ:MGTA)?
Heading into the third quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 120% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in MGTA a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Casdin Capital was the largest shareholder of Magenta Therapeutics, Inc. (NASDAQ:MGTA), with a stake worth $25.1 million reported as of the end of September. Trailing Casdin Capital was Alkeon Capital Management, which amassed a stake valued at $4.5 million. EcoR1 Capital, Luminus Management, and Harvard Management Co 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 Casdin Capital allocated the biggest weight to Magenta Therapeutics, Inc. (NASDAQ:MGTA), around 1.49% of its 13F portfolio. Harvard Management Co is also relatively very bullish on the stock, designating 0.54 percent of its 13F equity portfolio to MGTA.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. EcoR1 Capital, managed by Oleg Nodelman, established the biggest position in Magenta Therapeutics, Inc. (NASDAQ:MGTA). EcoR1 Capital had $3.4 million invested in the company at the end of the quarter. Jonathan Barrett and Paul Segal’s Luminus Management also initiated a $2.7 million position during the quarter. The other funds with new positions in the stock are William Leland Edwards’s Palo Alto Investors, Lawrence Hawkins’s Prosight Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to Magenta Therapeutics, Inc. (NASDAQ:MGTA). These stocks are Hanmi Financial Corp (NASDAQ:HAFC), Franklin Covey Co. (NYSE:FC), U.S. Xpress Enterprises, Inc. (NYSE:USX), Ethan Allen Interiors Inc. (NYSE:ETH), Valhi, Inc. (NYSE:VHI), Galiano Gold Inc. (NYSE:GAU), and PolyPid Ltd. (NASDAQ:PYPD). All of these stocks’ market caps resemble MGTA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HAFC | 12 | 15635 | 2 |
| FC | 12 | 20313 | -1 |
| USX | 6 | 1749 | -1 |
| ETH | 13 | 26149 | 1 |
| VHI | 4 | 2057 | -1 |
| GAU | 5 | 11485 | 1 |
| PYPD | 5 | 10396 | 5 |
| Average | 8.1 | 12541 | 0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.1 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $50 million in MGTA’s case. Ethan Allen Interiors Inc. (NYSE:ETH) is the most popular stock in this table. On the other hand Valhi, Inc. (NYSE:VHI) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Magenta Therapeutics, Inc. (NASDAQ:MGTA) is more popular among hedge funds. Our overall hedge fund sentiment score for MGTA is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately MGTA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MGTA were disappointed as the stock returned -9.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
