You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
CRISPR Therapeutics AG (NASDAQ:CRSP) was in 13 hedge funds’ portfolios at the end of June. CRSP shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 14 hedge funds in our database with CRSP positions at the end of the previous quarter. Our calculations also showed that CRSP 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 former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. We’re going to take a look at the recent hedge fund action surrounding CRISPR Therapeutics AG (NASDAQ:CRSP).
Hedge fund activity in CRISPR Therapeutics AG (NASDAQ:CRSP)
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the first quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in CRSP a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, EcoR1 Capital held the most valuable stake in CRISPR Therapeutics AG (NASDAQ:CRSP), which was worth $75.8 million at the end of the second quarter. On the second spot was Cormorant Asset Management which amassed $33 million worth of shares. Moreover, Farallon Capital, Clough Capital Partners, and Valiant Capital were also bullish on CRISPR Therapeutics AG (NASDAQ:CRSP), allocating a large percentage of their portfolios to this stock.
Since CRISPR Therapeutics AG (NASDAQ:CRSP) has experienced declining sentiment from hedge fund managers, we can see that there exists a select few hedge funds that elected to cut their entire stakes in the second quarter. It’s worth mentioning that Steven Boyd’s Armistice Capital said goodbye to the biggest investment of the 750 funds monitored by Insider Monkey, comprising about $2.9 million in stock. Noam Gottesman’s fund, GLG Partners, also said goodbye to its stock, about $1.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks similar to CRISPR Therapeutics AG (NASDAQ:CRSP). We will take a look at Box, Inc. (NYSE:BOX), MGE Energy, Inc. (NASDAQ:MGEE), Independent Bank Corp (NASDAQ:INDB), and AMN Healthcare Services Inc (NYSE:AMN). This group of stocks’ market values are closest to CRSP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BOX | 27 | 395491 | -5 |
| MGEE | 13 | 53798 | 4 |
| INDB | 11 | 16780 | 5 |
| AMN | 14 | 109685 | 3 |
| Average | 16.25 | 143939 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $180 million in CRSP’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Independent Bank Corp (NASDAQ:INDB) is the least popular one with only 11 bullish hedge fund positions. CRISPR Therapeutics AG (NASDAQ:CRSP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CRSP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CRSP investors were disappointed as the stock returned -13% 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.
