It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month 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’ consensus stock picks generate superior risk-adjusted returns. 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 Stoke Therapeutics, Inc. (NASDAQ:STOK).
Stoke Therapeutics, Inc. (NASDAQ:STOK) shareholders have witnessed an increase in hedge fund sentiment recently. STOK was in 18 hedge funds’ portfolios at the end of June. There were 0 hedge funds in our database with STOK holdings at the end of the previous quarter. Our calculations also showed that STOK isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the key hedge fund action encompassing Stoke Therapeutics, Inc. (NASDAQ:STOK).
How have hedgies been trading Stoke Therapeutics, Inc. (NASDAQ:STOK)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18 from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in STOK a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Cormorant Asset Management, managed by Bihua Chen, holds the most valuable position in Stoke Therapeutics, Inc. (NASDAQ:STOK). Cormorant Asset Management has a $54.5 million position in the stock, comprising 3.1% of its 13F portfolio. Coming in second is RA Capital Management, managed by Peter Kolchinsky, which holds a $32.7 million position; 1.8% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish comprise Jeremy Green’s Redmile Group, Joseph Edelman’s Perceptive Advisors and Israel Englander’s Millennium Management.
Now, some big names have jumped into Stoke Therapeutics, Inc. (NASDAQ:STOK) headfirst. Cormorant Asset Management, managed by Bihua Chen, initiated the largest position in Stoke Therapeutics, Inc. (NASDAQ:STOK). Cormorant Asset Management had $54.5 million invested in the company at the end of the quarter. Peter Kolchinsky’s RA Capital Management also made a $32.7 million investment in the stock during the quarter. The other funds with brand new STOK positions are Jeremy Green’s Redmile Group, Joseph Edelman’s Perceptive Advisors, and Israel Englander’s Millennium Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Stoke Therapeutics, Inc. (NASDAQ:STOK) but similarly valued. These stocks are Washington Trust Bancorp, Inc. (NASDAQ:WASH), Unitil Corporation (NYSE:UTL), JinkoSolar Holding Co., Ltd. (NYSE:JKS), and BJ’s Restaurants, Inc. (NASDAQ:BJRI). This group of stocks’ market valuations are similar to STOK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WASH | 7 | 28822 | 3 |
| UTL | 9 | 85550 | -1 |
| JKS | 8 | 18193 | 2 |
| BJRI | 14 | 124883 | -5 |
| Average | 9.5 | 64362 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $168 million in STOK’s case. BJ’s Restaurants, Inc. (NASDAQ:BJRI) is the most popular stock in this table. On the other hand Washington Trust Bancorp, Inc. (NASDAQ:WASH) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Stoke Therapeutics, Inc. (NASDAQ:STOK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately STOK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STOK were disappointed as the stock returned -26.3% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.