The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Denali Therapeutics Inc. (NASDAQ:DNLI) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Denali Therapeutics Inc. (NASDAQ:DNLI) ready to rally soon? Investors who are in the know were becoming less confident. The number of bullish hedge fund bets shrunk by 4 in recent months. Denali Therapeutics Inc. (NASDAQ:DNLI) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistic is 26. Our calculations also showed that DNLI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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 79 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.
John Overdeck of Two Sigma Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s review the new hedge fund action encompassing Denali Therapeutics Inc. (NASDAQ:DNLI).
Do Hedge Funds Think DNLI Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DNLI over the last 24 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Casdin Capital held the most valuable stake in Denali Therapeutics Inc. (NASDAQ:DNLI), which was worth $126.3 million at the end of the second quarter. On the second spot was Marshall Wace LLP which amassed $50.7 million worth of shares. Two Sigma Advisors, Euclidean Capital, and Integral Health 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 Euclidean Capital allocated the biggest weight to Denali Therapeutics Inc. (NASDAQ:DNLI), around 5.94% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, earmarking 3.21 percent of its 13F equity portfolio to DNLI.
Since Denali Therapeutics Inc. (NASDAQ:DNLI) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their positions entirely last quarter. Interestingly, Ken Griffin’s Citadel Investment Group cut the largest position of the “upper crust” of funds followed by Insider Monkey, worth about $13.7 million in stock, and Frank Fu’s CaaS Capital was right behind this move, as the fund dumped about $13.3 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Denali Therapeutics Inc. (NASDAQ:DNLI) but similarly valued. We will take a look at Braskem SA (NYSE:BAK), Arrival (NASDAQ:ARVL), Aramark (NYSE:ARMK), Canopy Growth Corporation (NYSE:CGC), Cricut, Inc. (NASDAQ:CRCT), Assurant, Inc. (NYSE:AIZ), and The Western Union Company (NYSE:WU). All of these stocks’ market caps are closest to DNLI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BAK | 6 | 16591 | -2 |
| ARVL | 17 | 117875 | 3 |
| ARMK | 36 | 1125117 | -3 |
| CGC | 16 | 171734 | 4 |
| CRCT | 13 | 241275 | 1 |
| AIZ | 26 | 945271 | -1 |
| WU | 31 | 369544 | 3 |
| Average | 20.7 | 426772 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $301 million in DNLI’s case. Aramark (NYSE:ARMK) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 6 bullish hedge fund positions. Denali Therapeutics Inc. (NASDAQ:DNLI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DNLI is 53.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately DNLI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DNLI were disappointed as the stock returned -39.1% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
