We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Twist Bioscience Corporation (NASDAQ:TWST).
Twist Bioscience Corporation (NASDAQ:TWST) was in 10 hedge funds’ portfolios at the end of September. TWST shareholders have witnessed an increase in enthusiasm from smart money of late. There were 9 hedge funds in our database with TWST holdings at the end of the previous quarter. Our calculations also showed that TWST 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.
Richard Driehaus of Driehaus Capital
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 take a look at the key hedge fund action regarding Twist Bioscience Corporation (NASDAQ:TWST).
Hedge fund activity in Twist Bioscience Corporation (NASDAQ:TWST)
Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the second quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in TWST a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in Twist Bioscience Corporation (NASDAQ:TWST), which was worth $20.2 million at the end of the third quarter. On the second spot was Cormorant Asset Management which amassed $16.4 million worth of shares. Casdin Capital, Driehaus Capital, and Intrinsic Edge Capital 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 Cormorant Asset Management allocated the biggest weight to Twist Bioscience Corporation (NASDAQ:TWST), around 1% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, earmarking 0.87 percent of its 13F equity portfolio to TWST.
Now, key hedge funds were leading the bulls’ herd. Intrinsic Edge Capital, managed by Mark Coe, created the most valuable position in Twist Bioscience Corporation (NASDAQ:TWST). Intrinsic Edge Capital had $6.2 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $2.2 million investment in the stock during the quarter. The other funds with brand new TWST positions are Noam Gottesman’s GLG Partners and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Twist Bioscience Corporation (NASDAQ:TWST) but similarly valued. We will take a look at ArcBest Corp (NASDAQ:ARCB), Vocera Communications Inc (NYSE:VCRA), Tupperware Brands Corporation (NYSE:TUP), and Eagle Pharmaceuticals Inc (NASDAQ:EGRX). This group of stocks’ market valuations are closest to TWST’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARCB | 14 | 75592 | -2 |
| VCRA | 9 | 26901 | -5 |
| TUP | 14 | 112420 | -3 |
| EGRX | 16 | 146879 | -4 |
| Average | 13.25 | 90448 | -3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $67 million in TWST’s case. Eagle Pharmaceuticals Inc (NASDAQ:EGRX) is the most popular stock in this table. On the other hand Vocera Communications Inc (NYSE:VCRA) is the least popular one with only 9 bullish hedge fund positions. Twist Bioscience Corporation (NASDAQ:TWST) 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 TWST wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TWST investors were disappointed as the stock returned -0.2% 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.
