The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Clementia Pharmaceuticals Inc. (NASDAQ:CMTA), and what that likely means for the prospects of the company and its stock.
Clementia Pharmaceuticals Inc. (NASDAQ:CMTA) was in 12 hedge funds’ portfolios at the end of the fourth quarter of 2018. CMTA investors should pay attention to an increase in enthusiasm from smart money recently. There were 10 hedge funds in our database with CMTA positions at the end of the previous quarter. Our calculations also showed that CMTA isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a peek at the recent hedge fund action surrounding Clementia Pharmaceuticals Inc. (NASDAQ:CMTA).
How have hedgies been trading Clementia Pharmaceuticals Inc. (NASDAQ:CMTA)?
Heading into the first quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in CMTA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Samuel Isaly’s OrbiMed Advisors has the largest position in Clementia Pharmaceuticals Inc. (NASDAQ:CMTA), worth close to $122.6 million, corresponding to 2.3% of its total 13F portfolio. On OrbiMed Advisors’s heels is Baker Bros. Advisors, managed by Julian Baker and Felix Baker, which holds a $43.8 million position; 0.4% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism consist of Joseph Edelman’s Perceptive Advisors, Richard Driehaus’s Driehaus Capital and Christopher James’s Partner Fund Management.
Now, key money managers were breaking ground themselves. Perceptive Advisors, managed by Joseph Edelman, assembled the most valuable position in Clementia Pharmaceuticals Inc. (NASDAQ:CMTA). Perceptive Advisors had $17.6 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $2.1 million position during the quarter. The only other fund with a brand new CMTA position is Israel Englander’s Millennium Management.
Let’s go over hedge fund activity in other stocks similar to Clementia Pharmaceuticals Inc. (NASDAQ:CMTA). We will take a look at Innovative Industrial Properties, Inc. (NYSE:IIPR), On Deck Capital Inc (NYSE:ONDK), Ready Capital Corporation (NYSE:RC), and Mesoblast Limited (NASDAQ:MESO). This group of stocks’ market caps resemble CMTA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IIPR | 8 | 18371 | 0 |
| ONDK | 20 | 119246 | -1 |
| RC | 6 | 35817 | 2 |
| MESO | 1 | 267 | -1 |
| Average | 8.75 | 43425 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $216 million in CMTA’s case. On Deck Capital Inc (NYSE:ONDK) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 1 bullish hedge fund positions. Clementia Pharmaceuticals Inc. (NASDAQ:CMTA) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CMTA wasn’t nearly as popular as these 15 stock and hedge funds that were betting on CMTA were disappointed as the stock returned -100% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
