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 Mersana Therapeutics, Inc. (NASDAQ:MRSN).
Is Mersana Therapeutics, Inc. (NASDAQ:MRSN) the right pick for your portfolio? The smart money is taking money off the table. The number of long hedge fund positions fell by 1 recently. Our calculations also showed that MRSN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). MRSN was in 13 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with MRSN positions at the end of the previous quarter. However, the overall hedge fund sentiment towards Mersana is still overwhelmingly bullish.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Alex Denner of Sarissa Capital Management
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. We’re going to take a gander at the recent hedge fund action surrounding Mersana Therapeutics, Inc. (NASDAQ:MRSN).
Hedge fund activity in Mersana Therapeutics, Inc. (NASDAQ:MRSN)
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the second quarter of 2019. On the other hand, there were a total of 4 hedge funds with a bullish position in MRSN a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Mark Lampert’s Biotechnology Value Fund has the largest position in Mersana Therapeutics, Inc. (NASDAQ:MRSN), worth close to $6.4 million, corresponding to 0.7% of its total 13F portfolio. Coming in second is Sarissa Capital Management, managed by Alex Denner, which holds a $5.9 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other peers that hold long positions contain Samuel Isaly’s OrbiMed Advisors, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Sarissa Capital Management allocated the biggest weight to Mersana Therapeutics, Inc. (NASDAQ:MRSN), around 0.74% of its 13F portfolio. Biotechnology Value Fund is also relatively very bullish on the stock, designating 0.67 percent of its 13F equity portfolio to MRSN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: EcoR1 Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified MRSN as a viable investment and initiated a position in the stock.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Mersana Therapeutics, Inc. (NASDAQ:MRSN) but similarly valued. We will take a look at IF Bancorp Inc (NASDAQ:IROQ), Electrameccanica Vehicles Corp. (NASDAQ:SOLO), Fauquier Bankshares, Inc. (NASDAQ:FBSS), and Vuzix Corporation (NASDAQ:VUZI). This group of stocks’ market caps resemble MRSN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IROQ | 1 | 2125 | -1 |
| SOLO | 2 | 648 | 0 |
| FBSS | 2 | 8860 | 0 |
| VUZI | 3 | 360 | -2 |
| Average | 2 | 2998 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $21 million in MRSN’s case. Vuzix Corporation (NASDAQ:VUZI) is the most popular stock in this table. On the other hand IF Bancorp Inc (NASDAQ:IROQ) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Mersana Therapeutics, Inc. (NASDAQ:MRSN) is more popular among hedge funds. 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. Hedge funds were also right about betting on MRSN as the stock returned 143.7% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
