It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Unity Biotechnology, Inc. (NASDAQ:UBX).
Unity Biotechnology, Inc. (NASDAQ:UBX) was in 4 hedge funds’ portfolios at the end of September. UBX shareholders have witnessed a decrease in hedge fund interest recently. There were 5 hedge funds in our database with UBX positions at the end of the previous quarter. Our calculations also showed that UBX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
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. Keeping this in mind let’s take a gander at the latest hedge fund action surrounding Unity Biotechnology, Inc. (NASDAQ:UBX).
What have hedge funds been doing with Unity Biotechnology, Inc. (NASDAQ:UBX)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UBX over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in Unity Biotechnology, Inc. (NASDAQ:UBX). Citadel Investment Group has a $2.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Millennium Management, managed by Israel Englander, which holds a $1.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers that are bullish consist of Oleg Nodelman’s EcoR1 Capital, Paul Marshall and Ian Wace’s Marshall Wace and . In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Unity Biotechnology, Inc. (NASDAQ:UBX), around 0.04% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.0021 percent of its 13F equity portfolio to UBX.
Seeing as Unity Biotechnology, Inc. (NASDAQ:UBX) has witnessed declining sentiment from the smart money, it’s safe to say that there exists a select few money managers who sold off their full holdings in the third quarter. It’s worth mentioning that Michael Castor’s Sio Capital dumped the largest position of the “upper crust” of funds monitored by Insider Monkey, valued at close to $1 million in stock. Mike Vranos’s fund, Ellington, also dropped its stock, about $0.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Unity Biotechnology, Inc. (NASDAQ:UBX) but similarly valued. These stocks are Compugen Ltd. (NASDAQ:CGEN), ShotSpotter, Inc. (NASDAQ:SSTI), Tsakos Energy Navigation Ltd. (NYSE:TNP), and ADMA Biologics Inc (NASDAQ:ADMA). This group of stocks’ market values resemble UBX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CGEN | 4 | 7644 | -1 |
| SSTI | 6 | 12594 | 0 |
| TNP | 7 | 27496 | 1 |
| ADMA | 11 | 105915 | 1 |
| Average | 7 | 38412 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $4 million in UBX’s case. ADMA Biologics Inc (NASDAQ:ADMA) is the most popular stock in this table. On the other hand Compugen Ltd. (NASDAQ:CGEN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Unity Biotechnology, Inc. (NASDAQ:UBX) is even less popular than CGEN. Hedge funds clearly dropped the ball on UBX 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 UBX as the stock returned 26.6% 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.
