Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index returned approximately 26% through November 22nd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 35% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 Proteon Therapeutics Inc (NASDAQ:PRTO).
Hedge fund interest in Proteon Therapeutics Inc (NASDAQ:PRTO) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare PRTO to other stocks including Onconova Therapeutics, Inc. (NASDAQ:ONTX), Onconova Therapeutics, Inc. (NASDAQ:ONTX), and Barnwell Industries, Inc. (NYSE:BRN) to get a better sense of its popularity.
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.
James E. Flynn of Deerfield Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the new hedge fund action encompassing Proteon Therapeutics Inc (NASDAQ:PRTO).
Hedge fund activity in Proteon Therapeutics Inc (NASDAQ:PRTO)
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PRTO over the last 17 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Deerfield Management, managed by James E. Flynn, holds the number one position in Proteon Therapeutics Inc (NASDAQ:PRTO). Deerfield Management has a $0.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Deerfield Management’s heels is Renaissance Technologies, holding a $0.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to Proteon Therapeutics Inc (NASDAQ:PRTO), around 0.01% of its portfolio. Opaleye Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to PRTO.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Opaleye Management).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Proteon Therapeutics Inc (NASDAQ:PRTO) but similarly valued. These stocks are Onconova Therapeutics, Inc. (NASDAQ:ONTX), Onconova Therapeutics, Inc. (NASDAQ:ONTX), Barnwell Industries, Inc. (NYSE:BRN), and CHF Solutions, Inc. (NASDAQ:CHFS). All of these stocks’ market caps match PRTO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ONTX | 5 | 1947 | -1 |
| ONTX | 5 | 1947 | -1 |
| BRN | 1 | 73 | -1 |
| CHFS | 1 | 185 | -1 |
| Average | 3 | 1038 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $1 million in PRTO’s case. Onconova Therapeutics, Inc. (NASDAQ:ONTX) is the most popular stock in this table. On the other hand Barnwell Industries, Inc. (NYSE:BRN) is the least popular one with only 1 bullish hedge fund positions. Proteon Therapeutics Inc (NASDAQ:PRTO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on PRTO as the stock returned 19.2% during Q4 (through 11/22) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
