Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like MorphoSys AG (NASDAQ:MOR).
MorphoSys AG (NASDAQ:MOR) has seen a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that MOR 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.
James E. Flynn of Deerfield Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to review the new hedge fund action surrounding MorphoSys AG (NASDAQ:MOR).
Hedge fund activity in MorphoSys AG (NASDAQ:MOR)
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the second quarter of 2019. By comparison, 5 hedge funds held shares or bullish call options in MOR 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 publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, James E. Flynn’s Deerfield Management has the most valuable position in MorphoSys AG (NASDAQ:MOR), worth close to $3.4 million, accounting for 0.1% of its total 13F portfolio. The second largest stake is held by Israel Englander of Millennium Management, with a $1.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Renaissance Technologies, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to MorphoSys AG (NASDAQ:MOR), around 0.14% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.0029 percent of its 13F equity portfolio to MOR.
Because MorphoSys AG (NASDAQ:MOR) has faced falling interest from the aggregate hedge fund industry, logic holds that there exists a select few hedgies that elected to cut their entire stakes last quarter. Interestingly, Jeremy Green’s Redmile Group said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $17.7 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund cut about $2.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as MorphoSys AG (NASDAQ:MOR) but similarly valued. These stocks are KBR, Inc. (NYSE:KBR), Cosan Limited (NYSE:CZZ), Tandem Diabetes Care Inc (NASDAQ:TNDM), and CarGurus, Inc. (NASDAQ:CARG). This group of stocks’ market caps match MOR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KBR | 29 | 540631 | 7 |
| CZZ | 15 | 198653 | 0 |
| TNDM | 34 | 587351 | 1 |
| CARG | 21 | 813076 | 1 |
| Average | 24.75 | 534928 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $7 million in MOR’s case. Tandem Diabetes Care Inc (NASDAQ:TNDM) is the most popular stock in this table. On the other hand Cosan Limited (NYSE:CZZ) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks MorphoSys AG (NASDAQ:MOR) is even less popular than CZZ. Hedge funds clearly dropped the ball on MOR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on MOR as the stock returned 11.5% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
