Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Dicerna Pharmaceuticals Inc (NASDAQ:DRNA).
Is Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) a bargain? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund bets went down by 3 in recent months. Our calculations also showed that DRNA isn’t among the 30 most popular stocks among hedge funds (see the video below). DRNA was in 16 hedge funds’ portfolios at the end of the second quarter of 2019. There were 19 hedge funds in our database with DRNA holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Let’s take a look at the fresh hedge fund action surrounding Dicerna Pharmaceuticals Inc (NASDAQ:DRNA).
What have hedge funds been doing with Dicerna Pharmaceuticals Inc (NASDAQ:DRNA)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the first quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in DRNA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Roberto Mignone’s Bridger Management has the biggest position in Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), worth close to $65.7 million, corresponding to 5.2% of its total 13F portfolio. The second largest stake is held by EcoR1 Capital, led by Oleg Nodelman, holding a $52.2 million position; 5.3% of its 13F portfolio is allocated to the company. Some other peers that hold long positions encompass Phill Gross and Robert Atchinson’s Adage Capital Management, Peter Kolchinsky’s RA Capital Management and Ken Griffin’s Citadel Investment Group.
Because Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers who sold off their full holdings last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dumped the biggest stake of all the hedgies watched by Insider Monkey, comprising about $19.8 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) but similarly valued. These stocks are Schweitzer-Mauduit International, Inc. (NYSE:SWM), Milacron Holdings Corp (NYSE:MCRN), SecureWorks Corp. (NASDAQ:SCWX), and H&E Equipment Services, Inc. (NASDAQ:HEES). This group of stocks’ market caps are similar to DRNA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SWM | 10 | 24291 | 0 |
| MCRN | 13 | 60802 | -11 |
| SCWX | 9 | 19866 | -3 |
| HEES | 12 | 37700 | -1 |
| Average | 11 | 35665 | -3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $290 million in DRNA’s case. Milacron Holdings Corp (NYSE:MCRN) is the most popular stock in this table. On the other hand SecureWorks Corp. (NASDAQ:SCWX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is more popular among hedge funds. 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 DRNA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DRNA were disappointed as the stock returned -8.8% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
