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 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month 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’ 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 Assembly Biosciences Inc (NASDAQ:ASMB).
Assembly Biosciences Inc (NASDAQ:ASMB) shareholders have witnessed an increase in support from the world’s most elite money managers recently. ASMB was in 19 hedge funds’ portfolios at the end of the first quarter of 2019. There were 18 hedge funds in our database with ASMB holdings at the end of the previous quarter. Our calculations also showed that asmb isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a gander at the latest hedge fund action encompassing Assembly Biosciences Inc (NASDAQ:ASMB).
How are hedge funds trading Assembly Biosciences Inc (NASDAQ:ASMB)?
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ASMB over the last 15 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, EcoR1 Capital was the largest shareholder of Assembly Biosciences Inc (NASDAQ:ASMB), with a stake worth $22.7 million reported as of the end of March. Trailing EcoR1 Capital was Armistice Capital, which amassed a stake valued at $22.2 million. OrbiMed Advisors, venBio Select Advisor, and Sectoral Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the biggest position in Assembly Biosciences Inc (NASDAQ:ASMB). Point72 Asset Management had $2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.6 million position during the quarter.
Let’s now review hedge fund activity in other stocks similar to Assembly Biosciences Inc (NASDAQ:ASMB). These stocks are Barings BDC, Inc. (NYSE:BBDC), Forty Seven, Inc. (NASDAQ:FTSV), Exela Technologies, Inc. (NASDAQ:XELA), and American Public Education, Inc. (NASDAQ:APEI). This group of stocks’ market values match ASMB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BBDC | 12 | 17484 | 2 |
| FTSV | 8 | 28475 | 2 |
| XELA | 10 | 85307 | -3 |
| APEI | 15 | 76344 | -1 |
| Average | 11.25 | 51903 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $132 million in ASMB’s case. American Public Education, Inc. (NASDAQ:APEI) is the most popular stock in this table. On the other hand Forty Seven, Inc. (NASDAQ:FTSV) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Assembly Biosciences Inc (NASDAQ:ASMB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ASMB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ASMB were disappointed as the stock returned -26% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
