Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Five Prime Therapeutics Inc (NASDAQ:FPRX).
Is Five Prime Therapeutics Inc (NASDAQ:FPRX) undervalued? The best stock pickers are becoming less hopeful. The number of bullish hedge fund bets dropped by 2 in recent months. Our calculations also showed that FPRX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the key hedge fund action surrounding Five Prime Therapeutics Inc (NASDAQ:FPRX).
What does smart money think about Five Prime Therapeutics Inc (NASDAQ:FPRX)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FPRX over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Five Prime Therapeutics Inc (NASDAQ:FPRX) was held by Biotechnology Value Fund, which reported holding $14.6 million worth of stock at the end of September. It was followed by GLG Partners with a $5.2 million position. Other investors bullish on the company included Renaissance Technologies, Adage Capital Management, and Rock Springs Capital Management. In terms of the portfolio weights assigned to each position Biotechnology Value Fund allocated the biggest weight to Five Prime Therapeutics Inc (NASDAQ:FPRX), around 1.53% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to FPRX.
Judging by the fact that Five Prime Therapeutics Inc (NASDAQ:FPRX) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds that slashed their full holdings heading into Q4. Intriguingly, Jeffrey Jay and David Kroin’s Great Point Partners cut the biggest stake of all the hedgies followed by Insider Monkey, valued at close to $3.3 million in stock. Donald Sussman’s fund, Paloma Partners, also sold off its stock, about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Five Prime Therapeutics Inc (NASDAQ:FPRX) but similarly valued. We will take a look at Greenlane Holdings, Inc. (NASDAQ:GNLN), Adamas Pharmaceuticals Inc (NASDAQ:ADMS), Union Bankshares, Inc. (NASDAQ:UNB), and Avalon GloboCare Corp. (NASDAQ:AVCO). This group of stocks’ market valuations match FPRX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GNLN | 6 | 9719 | 0 |
| ADMS | 10 | 8048 | 1 |
| UNB | 1 | 663 | 0 |
| AVCO | 2 | 444 | 0 |
| Average | 4.75 | 4719 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $42 million in FPRX’s case. Adamas Pharmaceuticals Inc (NASDAQ:ADMS) is the most popular stock in this table. On the other hand Union Bankshares, Inc. (NASDAQ:UNB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Five Prime Therapeutics Inc (NASDAQ:FPRX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FPRX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FPRX were disappointed as the stock returned 1% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
