Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Aduro BioTech Inc (NASDAQ:ADRO).
Is Aduro BioTech Inc (NASDAQ:ADRO) a safe investment now? Hedge funds are actually turning less bullish. The number of bullish hedge fund bets dropped by 1 recently. ADRO was in 6 hedge funds’ portfolios at the end of September. There were 7 hedge funds in our database with ADRO holdings at the end of June. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Veritiv Corp (NYSE:VRTV), Denny’s Corporation (NASDAQ:DENN), and Scorpio Tankers Inc. (NYSE:STNG) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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What have hedge funds been doing with Aduro BioTech Inc (NASDAQ:ADRO)?
Heading into the fourth quarter of 2016, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ADRO over the last 5 quarters, which steadily trending down, though within a narrow range. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Mark Lampert’s Biotechnology Value Fund / BVF Inc has the largest position in Aduro BioTech Inc (NASDAQ:ADRO), worth close to $6.2 million, corresponding to 1.2% of its total 13F portfolio. Sitting at the No. 2 spot is Kris Jenner, Gordon Bussard, and Graham McPhail of Rock Springs Capital Management, which holds a $5.2 million position. Remaining hedge funds and institutional investors that hold long positions consist of Charles Clough’s Clough Capital Partners, Peter Muller’s PDT Partners, and Mike Vranos’ Ellington. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually cashed in their positions entirely. At the top of the heap, Daniel Gold’s QVT Financial cashed in the largest position of the “upper crust” of funds tracked by Insider Monkey, comprising close to $2.2 million in stock. Millennium Management, one of the 10 largest hedge funds in the world, also dumped its stock, about $1.7 million worth.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Aduro BioTech Inc (NASDAQ:ADRO) but similarly valued. These stocks are Veritiv Corp (NYSE:VRTV), Denny’s Corporation (NASDAQ:DENN), Scorpio Tankers Inc. (NYSE:STNG), and TrueCar Inc (NASDAQ:TRUE). This group of stocks’ market caps are similar to ADRO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRTV | 12 | 164474 | 4 |
| DENN | 13 | 75265 | -2 |
| STNG | 19 | 91933 | -4 |
| TRUE | 12 | 97106 | 6 |
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $16 million in ADRO’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Veritiv Corp (NYSE:VRTV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Aduro BioTech Inc (NASDAQ:ADRO) is even less popular than VRTV. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.
Disclosure: None
