How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) and determine whether hedge funds had an edge regarding this stock.
Hedge fund interest in KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that KALV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as LiveXLive Media, Inc. (NASDAQ:LIVX), Tortoise Energy Infrastructure Corporation (NYSE:TYG), and Maui Land & Pineapple Company, Inc. (NYSE:MLP) to gather more data points. Our calculations also showed that KALV isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
Kamran Moghtaderi of Eversept Partners
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 are checking out this junior gold mining stock and 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s analyze the recent hedge fund action surrounding KalVista Pharmaceuticals, Inc. (NASDAQ:KALV).
How have hedgies been trading KalVista Pharmaceuticals, Inc. (NASDAQ:KALV)?
At second quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KALV over the last 20 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Vivo Capital, managed by Albert Cha and Frank Kung, holds the largest position in KalVista Pharmaceuticals, Inc. (NASDAQ:KALV). Vivo Capital has a $17.9 million position in the stock, comprising 1.3% of its 13F portfolio. Sitting at the No. 2 spot is Neil Shahrestani of Ikarian Capital, with a $13.5 million position; 1.1% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish contain Arsani William’s Logos Capital, James A. Silverman’s Opaleye Management and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Logos Capital allocated the biggest weight to KalVista Pharmaceuticals, Inc. (NASDAQ:KALV), around 1.36% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, dishing out 1.28 percent of its 13F equity portfolio to KALV.
Seeing as KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) has faced falling interest from hedge fund managers, it’s safe to say that there is a sect of funds that decided to sell off their full holdings in the second quarter. Interestingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth close to $4.5 million in stock. Samuel Isaly’s fund, OrbiMed Advisors, also dropped its stock, about $3.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) but similarly valued. We will take a look at LiveXLive Media, Inc. (NASDAQ:LIVX), Tortoise Energy Infrastructure Corporation (NYSE:TYG), Maui Land & Pineapple Company, Inc. (NYSE:MLP), Citi Trends, Inc. (NASDAQ:CTRN), Ryerson Holding Corporation (NYSE:RYI), Turtle Beach Corp (NASDAQ:HEAR), and PCSB Financial Corporation (NASDAQ:PCSB). This group of stocks’ market caps are closest to KALV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LIVX | 7 | 12738 | 4 |
| TYG | 1 | 1742 | -1 |
| MLP | 3 | 8765 | 2 |
| CTRN | 13 | 37754 | -2 |
| RYI | 13 | 10506 | 0 |
| HEAR | 13 | 30044 | 3 |
| PCSB | 9 | 16350 | -1 |
| Average | 8.4 | 16843 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.4 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $67 million in KALV’s case. Citi Trends, Inc. (NASDAQ:CTRN) is the most popular stock in this table. On the other hand Tortoise Energy Infrastructure Corporation (NYSE:TYG) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) is more popular among hedge funds. Our overall hedge fund sentiment score for KALV is 83.4. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately KALV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KALV were disappointed as the stock returned 4% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
