Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about SpringWorks Therapeutics, Inc. (NASDAQ:SWTX).
Is SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) a buy, sell, or hold? Prominent investors are taking a bullish view. The number of long hedge fund bets rose by 11 in recent months. Our calculations also showed that SWTX 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.
Samuel Isaly of OrbiMed Advisors
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the key hedge fund action surrounding SpringWorks Therapeutics, Inc. (NASDAQ:SWTX).
What have hedge funds been doing with SpringWorks Therapeutics, Inc. (NASDAQ:SWTX)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11 from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SWTX over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, OrbiMed Advisors was the largest shareholder of SpringWorks Therapeutics, Inc. (NASDAQ:SWTX), with a stake worth $160.6 million reported as of the end of September. Trailing OrbiMed Advisors was Perceptive Advisors, which amassed a stake valued at $69.8 million. Biotechnology Value Fund, Citadel Investment Group, and Deerfield Management 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 Samsara BioCapital allocated the biggest weight to SpringWorks Therapeutics, Inc. (NASDAQ:SWTX), around 9.98% of its 13F portfolio. Biotechnology Value Fund is also relatively very bullish on the stock, designating 6.48 percent of its 13F equity portfolio to SWTX.
As aggregate interest increased, specific money managers were breaking ground themselves. OrbiMed Advisors, managed by Samuel Isaly, assembled the most outsized position in SpringWorks Therapeutics, Inc. (NASDAQ:SWTX). OrbiMed Advisors had $160.6 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also initiated a $69.8 million position during the quarter. The other funds with brand new SWTX positions are Mark Lampert’s Biotechnology Value Fund, Ken Griffin’s Citadel Investment Group, and James E. Flynn’s Deerfield Management.
Let’s now take a look at hedge fund activity in other stocks similar to SpringWorks Therapeutics, Inc. (NASDAQ:SWTX). These stocks are Sirius International Insurance Group, Ltd. (NASDAQ:SG), Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), ATN International, Inc. (NASDAQ:ATNI), and Antero Resources Corp (NYSE:AR). All of these stocks’ market caps are closest to SWTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SG | 3 | 2416 | 2 |
| SPPI | 7 | 32036 | -2 |
| ATNI | 9 | 65615 | 0 |
| AR | 26 | 354639 | -4 |
| Average | 11.25 | 113677 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $382 million in SWTX’s case. Antero Resources Corp (NYSE:AR) is the most popular stock in this table. On the other hand Sirius International Insurance Group, Ltd. (NASDAQ:SG) is the least popular one with only 3 bullish hedge fund positions. SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 SWTX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SWTX investors were disappointed as the stock returned 5.2% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.