Is bluebird bio Inc (NASDAQ:BLUE) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
bluebird bio Inc (NASDAQ:BLUE) has seen a decrease in support from the world’s most elite money managers recently. Our calculations also showed that BLUE isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the recent hedge fund action regarding bluebird bio Inc (NASDAQ:BLUE).
What have hedge funds been doing with bluebird bio Inc (NASDAQ:BLUE)?
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in BLUE a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Casdin Capital was the largest shareholder of bluebird bio Inc (NASDAQ:BLUE), with a stake worth $47.4 million reported as of the end of March. Trailing Casdin Capital was Healthcor Management LP, which amassed a stake valued at $46.8 million. D E Shaw, Armistice Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because bluebird bio Inc (NASDAQ:BLUE) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedgies that slashed their entire stakes by the end of the second quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, valued at an estimated $6.1 million in call options, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $3.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds by the end of the second quarter.
Let’s check out hedge fund activity in other stocks similar to bluebird bio Inc (NASDAQ:BLUE). We will take a look at First Solar, Inc. (NASDAQ:FSLR), PVH Corp (NYSE:PVH), Hill-Rom Holdings, Inc. (NYSE:HRC), and The Toro Company (NYSE:TTC). This group of stocks’ market caps match BLUE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FSLR | 24 | 372192 | 1 |
| PVH | 32 | 1066193 | 1 |
| HRC | 27 | 627642 | -2 |
| TTC | 24 | 620869 | 8 |
| Average | 26.75 | 671724 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $672 million. That figure was $156 million in BLUE’s case. PVH Corp (NYSE:PVH) is the most popular stock in this table. On the other hand First Solar, Inc. (NASDAQ:FSLR) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks bluebird bio Inc (NASDAQ:BLUE) is even less popular than FSLR. Hedge funds dodged a bullet by taking a bearish stance towards BLUE. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BLUE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BLUE investors were disappointed as the stock returned -27.8% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
