We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded FibroGen Inc (NASDAQ:FGEN) based on those filings.
FibroGen Inc (NASDAQ:FGEN) shareholders have witnessed a decrease in hedge fund interest of late. Our calculations also showed that FGEN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lei Zhang of Hillhouse Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the new hedge fund action regarding FibroGen Inc (NASDAQ:FGEN).
What does smart money think about FibroGen Inc (NASDAQ:FGEN)?
Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FGEN over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Hillhouse Capital Management was the largest shareholder of FibroGen Inc (NASDAQ:FGEN), with a stake worth $169.7 million reported as of the end of September. Trailing Hillhouse Capital Management was EcoR1 Capital, which amassed a stake valued at $64 million. Farallon Capital, EcoR1 Capital, and Sectoral Asset Management 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 EcoR1 Capital allocated the biggest weight to FibroGen Inc (NASDAQ:FGEN), around 5.86% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, setting aside 2.66 percent of its 13F equity portfolio to FGEN.
Due to the fact that FibroGen Inc (NASDAQ:FGEN) has faced falling interest from hedge fund managers, we can see that there lies a certain “tier” of money managers that elected to cut their positions entirely in the third quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the biggest stake of the 750 funds watched by Insider Monkey, totaling close to $55.5 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dumped its stock, about $2.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to FibroGen Inc (NASDAQ:FGEN). We will take a look at Adaptive Biotechnologies Corporation (NASDAQ:ADPT), Macquarie Infrastructure Corporation (NYSE:MIC), Verint Systems Inc. (NASDAQ:VRNT), and Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL). This group of stocks’ market values match FGEN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADPT | 22 | 2003392 | 0 |
| MIC | 34 | 275388 | 7 |
| VRNT | 15 | 285514 | -7 |
| CBRL | 24 | 155764 | 0 |
| Average | 23.75 | 680015 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $680 million. That figure was $360 million in FGEN’s case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand Verint Systems Inc. (NASDAQ:VRNT) is the least popular one with only 15 bullish hedge fund positions. FibroGen Inc (NASDAQ:FGEN) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately FGEN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FGEN investors were disappointed as the stock returned -26.4% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
