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 Lyra Therapeutics, Inc. (NASDAQ:LYRA).
Is Lyra Therapeutics, Inc. (NASDAQ:LYRA) a good stock to buy now? Money managers were getting less bullish. The number of bullish hedge fund bets retreated by 2 recently. Lyra Therapeutics, Inc. (NASDAQ:LYRA) was in 6 hedge funds’ portfolios at the end of September. The all time high for this statistics is 8. Our calculations also showed that LYRA 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). There were 8 hedge funds in our database with LYRA holdings at the end of June.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Peter Kolchinsky of RA Capital Management
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 15 best blue chip stocks 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. With all of this in mind let’s view the latest hedge fund action regarding Lyra Therapeutics, Inc. (NASDAQ:LYRA).
What does smart money think about Lyra Therapeutics, Inc. (NASDAQ:LYRA)?
Heading into the fourth quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LYRA over the last 21 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Perceptive Advisors was the largest shareholder of Lyra Therapeutics, Inc. (NASDAQ:LYRA), with a stake worth $36 million reported as of the end of September. Trailing Perceptive Advisors was RA Capital Management, which amassed a stake valued at $9.3 million. Ikarian Capital, Pura Vida Investments, and Soleus Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Soleus Capital allocated the biggest weight to Lyra Therapeutics, Inc. (NASDAQ:LYRA), around 0.66% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, setting aside 0.53 percent of its 13F equity portfolio to LYRA.
Because Lyra Therapeutics, Inc. (NASDAQ:LYRA) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that elected to cut their positions entirely heading into Q4. At the top of the heap, Ken Griffin’s Citadel Investment Group dumped the largest stake of all the hedgies watched by Insider Monkey, worth an estimated $2.9 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also sold off its stock, about $0.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to Lyra Therapeutics, Inc. (NASDAQ:LYRA). These stocks are Western New England Bancorp, Inc. (NASDAQ:WNEB), First Internet Bancorp (NASDAQ:INBK), L.B. Foster Company (NASDAQ:FSTR), Inmune Bio Inc. (NASDAQ:INMB), Aytu BioScience, Inc. (NASDAQ:AYTU), Orrstown Financial Services (NASDAQ:ORRF), and Harrow Health, Inc. (NASDAQ:HROW). This group of stocks’ market values resemble LYRA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WNEB | 3 | 12969 | -1 |
| INBK | 9 | 3929 | 1 |
| FSTR | 12 | 34741 | 0 |
| INMB | 3 | 4021 | 3 |
| AYTU | 3 | 80 | -1 |
| ORRF | 3 | 3712 | -1 |
| HROW | 15 | 33472 | 5 |
| Average | 6.9 | 13275 | 0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $54 million in LYRA’s case. Harrow Health, Inc. (NASDAQ:HROW) is the most popular stock in this table. On the other hand Western New England Bancorp, Inc. (NASDAQ:WNEB) is the least popular one with only 3 bullish hedge fund positions. Lyra Therapeutics, Inc. (NASDAQ:LYRA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LYRA is 38. 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 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 still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on LYRA as the stock returned 15.4% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.