How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cue Biopharma, Inc. (NASDAQ:CUE) and determine whether hedge funds had an edge regarding this stock.
Cue Biopharma, Inc. (NASDAQ:CUE) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Cue Biopharma, Inc. (NASDAQ:CUE) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. 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 CUE 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.
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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Michael Gelband of ExodusPoint Capital
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 real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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 take a gander at the key hedge fund action encompassing Cue Biopharma, Inc. (NASDAQ:CUE).
What have hedge funds been doing with Cue Biopharma, Inc. (NASDAQ:CUE)?
Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. On the other hand, there were a total of 1 hedge funds with a bullish position in CUE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Nantahala Capital Management held the most valuable stake in Cue Biopharma, Inc. (NASDAQ:CUE), which was worth $57 million at the end of the third quarter. On the second spot was Avoro Capital Advisors (venBio Select Advisor) which amassed $45.8 million worth of shares. Slate Path Capital, Corriente Advisors, and Woodline Partners 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 Corriente Advisors allocated the biggest weight to Cue Biopharma, Inc. (NASDAQ:CUE), around 10.48% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, setting aside 3.26 percent of its 13F equity portfolio to CUE.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, established the most outsized position in Cue Biopharma, Inc. (NASDAQ:CUE). Woodline Partners had $16.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $5.4 million position during the quarter. The other funds with brand new CUE positions are Blair Baker’s Precept Capital Management, Parvinder Thiara’s Athanor Capital, and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks similar to Cue Biopharma, Inc. (NASDAQ:CUE). We will take a look at Zumiez Inc. (NASDAQ:ZUMZ), trivago N.V. (NASDAQ:TRVG), United Fire Group, Inc. (NASDAQ:UFCS), Dine Brands Global, Inc. (NYSE:DIN), Unisys Corporation (NYSE:UIS), Homology Medicines, Inc. (NASDAQ:FIXX), and Federal Agricultural Mortgage Corp. (NYSE:AGM). This group of stocks’ market valuations match CUE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZUMZ | 19 | 40302 | -3 |
| TRVG | 7 | 61979 | 0 |
| UFCS | 6 | 7347 | 1 |
| DIN | 25 | 72801 | 4 |
| UIS | 19 | 59404 | 3 |
| FIXX | 16 | 52272 | 1 |
| AGM | 8 | 17724 | -1 |
| Average | 14.3 | 44547 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $198 million in CUE’s case. Dine Brands Global, Inc. (NYSE:DIN) is the most popular stock in this table. On the other hand United Fire Group, Inc. (NASDAQ:UFCS) is the least popular one with only 6 bullish hedge fund positions. Cue Biopharma, Inc. (NASDAQ:CUE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CUE is 70.6. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 19.3 percentage points. Unfortunately CUE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CUE were disappointed as the stock returned -38.6% in Q3 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
