Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN).
Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 4. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. DFFN has seen an increase in activity from the world’s largest hedge funds lately. There were 2 hedge funds in our database with DFFN positions at the end of the second quarter. Our calculations also showed that DFFN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s review the fresh hedge fund action regarding Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN).
Hedge fund activity in Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN)
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in DFFN a year ago. So, let’s find out 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, Renaissance Technologies has the number one position in Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN), worth close to $2.5 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $0 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish comprise Tim Mullen’s Swift Run Capital Management, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Swift Run Capital Management allocated the biggest weight to Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN), around 0.03% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0025 percent of its 13F equity portfolio to DFFN.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, initiated the biggest position in Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN). Citadel Investment Group had $0 million invested in the company at the end of the quarter. Tim Mullen’s Swift Run Capital Management also initiated a $0 million position during the quarter. The only other fund with a brand new DFFN position is Israel Englander’s Millennium Management.
Let’s also examine hedge fund activity in other stocks similar to Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN). These stocks are CollPlant Biotechnologies Ltd. (NASDAQ:CLGN), Akerna Corp. (NASDAQ:KERN), Merrimack Pharmaceuticals Inc (NASDAQ:MACK), Soligenix, Inc. (NASDAQ:SNGX), Verb Technology Company, Inc. (NASDAQ:VERB), Full House Resorts, Inc. (NASDAQ:FLL), and Bioanalytical Systems, Inc. (NASDAQ:BASI). All of these stocks’ market caps are similar to DFFN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CLGN | 2 | 195 | 1 |
| KERN | 3 | 423 | -1 |
| MACK | 4 | 10257 | 1 |
| SNGX | 2 | 1448 | -1 |
| VERB | 5 | 359 | 1 |
| FLL | 8 | 4441 | 1 |
| BASI | 1 | 2390 | 0 |
| Average | 3.6 | 2788 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.6 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $3 million in DFFN’s case. Full House Resorts, Inc. (NASDAQ:FLL) is the most popular stock in this table. On the other hand Bioanalytical Systems, Inc. (NASDAQ:BASI) is the least popular one with only 1 bullish hedge fund positions. Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DFFN is 58.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately DFFN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DFFN were disappointed as the stock returned -7.1% since the end of September (through 11/27) 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 this year.
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Disclosure: None. This article was originally published at Insider Monkey.
