The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Kaleido BioSciences, Inc. (NASDAQ:KLDO) and find out how it is affected by hedge funds’ moves.
Hedge fund interest in Kaleido BioSciences, Inc. (NASDAQ:KLDO) 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 KLDO to other stocks including Applied Optoelectronics Inc (NASDAQ:AAOI), SC Health Corporation (NYSE:SCPE), and Era Group Inc (NYSE:ERA) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are plenty of indicators market participants have at their disposal to analyze publicly traded companies. Some of the most useful indicators are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can outclass the broader indices by a significant amount (see the details here).
William Leland Edwards of Palo Alto Investors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a look at the latest hedge fund action encompassing Kaleido BioSciences, Inc. (NASDAQ:KLDO).
How have hedgies been trading Kaleido BioSciences, Inc. (NASDAQ:KLDO)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in KLDO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Palo Alto Investors, managed by William Leland Edwards, holds the biggest position in Kaleido BioSciences, Inc. (NASDAQ:KLDO). Palo Alto Investors has a $5.9 million position in the stock, comprising 0.4% of its 13F portfolio. On Palo Alto Investors’s heels is Rock Springs Capital Management, led by Kris Jenner, Gordon Bussard, Graham McPhail, holding a $0.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions comprise Sahm Adrangi’s Kerrisdale Capital, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Palo Alto Investors allocated the biggest weight to Kaleido BioSciences, Inc. (NASDAQ:KLDO), around 0.4% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, earmarking 0.34 percent of its 13F equity portfolio to KLDO.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowgrass Capital Partners. 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 Citadel Investment Group).
Let’s check out hedge fund activity in other stocks similar to Kaleido BioSciences, Inc. (NASDAQ:KLDO). We will take a look at Applied Optoelectronics Inc (NASDAQ:AAOI), SC Health Corporation (NYSE:SCPE), Era Group Inc (NYSE:ERA), and ProQR Therapeutics NV (NASDAQ:PRQR). This group of stocks’ market values resemble KLDO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AAOI | 10 | 24696 | -3 |
| SCPE | 16 | 73061 | 16 |
| ERA | 6 | 20340 | 1 |
| PRQR | 8 | 33544 | -1 |
| Average | 10 | 37910 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $8 million in KLDO’s case. SC Health Corporation (NYSE:SCPE) is the most popular stock in this table. On the other hand Era Group Inc (NYSE:ERA) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Kaleido BioSciences, Inc. (NASDAQ:KLDO) is even less popular than ERA. Hedge funds clearly dropped the ball on KLDO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on KLDO as the stock returned 15.7% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
