Hedge Funds Keep Buying Fate Therapeutics Inc (FATE)

In this article we will check out the progression of hedge fund sentiment towards Fate Therapeutics Inc (NASDAQ:FATE) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Fate Therapeutics Inc (NASDAQ:FATE) a bargain? The best stock pickers are betting on the stock. The number of bullish hedge fund bets inched up by 1 recently. Our calculations also showed that FATE isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Oleg Nodelman of EcoR1 Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the key hedge fund action encompassing Fate Therapeutics Inc (NASDAQ:FATE).

What does smart money think about Fate Therapeutics Inc (NASDAQ:FATE)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in FATE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Redmile Group held the most valuable stake in Fate Therapeutics Inc (NASDAQ:FATE), which was worth $249.1 million at the end of the third quarter. On the second spot was Farallon Capital which amassed $66.6 million worth of shares. Casdin Capital, EcoR1 Capital, and Citadel Investment Group 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 Redmile Group allocated the biggest weight to Fate Therapeutics Inc (NASDAQ:FATE), around 6.98% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, dishing out 6.01 percent of its 13F equity portfolio to FATE.

Now, specific money managers were breaking ground themselves. Logos Capital, managed by Arsani William, created the most valuable position in Fate Therapeutics Inc (NASDAQ:FATE). Logos Capital had $4.3 million invested in the company at the end of the quarter. Bhagwan Jay Rao’s Integral Health Asset Management also initiated a $2.1 million position during the quarter. The following funds were also among the new FATE investors: Bihua Chen’s Cormorant Asset Management, Louis Bacon’s Moore Global Investments, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Fate Therapeutics Inc (NASDAQ:FATE) but similarly valued. These stocks are Golub Capital BDC Inc (NASDAQ:GBDC), Genworth Financial Inc (NYSE:GNW), Option Care Health, Inc. (NASDAQ:OPCH), and Spectrum Brands Holdings, Inc. (NYSE:SPB). This group of stocks’ market valuations match FATE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $582 million in FATE’s case. Genworth Financial Inc (NYSE:GNW) is the most popular stock in this table. On the other hand Option Care Health, Inc. (NASDAQ:OPCH) is the least popular one with only 7 bullish hedge fund positions. Fate Therapeutics Inc (NASDAQ:FATE) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on FATE as the stock returned 48.5% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.