Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Spark Therapeutics Inc (NASDAQ:ONCE).
Is Spark Therapeutics Inc (NASDAQ:ONCE) a buy here? Investors who are in the know are turning bullish. The number of bullish hedge fund positions inched up by 21 lately. Our calculations also showed that once isn’t among the 30 most popular stocks among hedge funds.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a gander at the latest hedge fund action encompassing Spark Therapeutics Inc (NASDAQ:ONCE).
How have hedgies been trading Spark Therapeutics Inc (NASDAQ:ONCE)?
Heading into the second quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 140% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in ONCE a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Casdin Capital was the largest shareholder of Spark Therapeutics Inc (NASDAQ:ONCE), with a stake worth $107 million reported as of the end of March. Trailing Casdin Capital was Magnetar Capital, which amassed a stake valued at $104.3 million. Beryl Capital Management, Baker Bros. Advisors, and Alpine Associates were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds have jumped into Spark Therapeutics Inc (NASDAQ:ONCE) headfirst. Magnetar Capital, managed by Alec Litowitz and Ross Laser, assembled the largest position in Spark Therapeutics Inc (NASDAQ:ONCE). Magnetar Capital had $104.3 million invested in the company at the end of the quarter. David Alexander Witkin’s Beryl Capital Management also made a $102.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Robert Emil Zoellner’s Alpine Associates, Israel Englander’s Millennium Management, and John Orrico’s Water Island Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Spark Therapeutics Inc (NASDAQ:ONCE) but similarly valued. These stocks are Western Alliance Bancorporation (NYSE:WAL), OneMain Holdings Inc (NYSE:OMF), Lancaster Colony Corporation (NASDAQ:LANC), and Kinross Gold Corporation (NYSE:KGC). All of these stocks’ market caps are closest to ONCE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WAL | 28 | 288568 | 0 |
| OMF | 31 | 237512 | 9 |
| LANC | 24 | 284865 | 12 |
| KGC | 19 | 318872 | 2 |
| Average | 25.5 | 282454 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $282 million. That figure was $1167 million in ONCE’s case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand Kinross Gold Corporation (NYSE:KGC) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Spark Therapeutics Inc (NASDAQ:ONCE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ONCE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ONCE were disappointed as the stock returned -3% 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 in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
