We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 NextCure, Inc. (NASDAQ:NXTC).
NextCure, Inc. (NASDAQ:NXTC) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of September. 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 Astec Industries, Inc. (NASDAQ:ASTE), Emerald Expositions Events, Inc. (NYSE:EEX), and United Financial Bancorp, Inc. (NASDAQ:UBNK) to gather more data points. Our calculations also showed that NXTC 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Samuel Isaly of OrbiMed Advisors
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. We’re going to review the fresh hedge fund action encompassing NextCure, Inc. (NASDAQ:NXTC).
How are hedge funds trading NextCure, Inc. (NASDAQ:NXTC)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in NXTC 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.
Among these funds, OrbiMed Advisors held the most valuable stake in NextCure, Inc. (NASDAQ:NXTC), which was worth $83.6 million at the end of the third quarter. On the second spot was Hillhouse Capital Management which amassed $32.5 million worth of shares. Citadel Investment Group, Cormorant Asset Management, and EcoR1 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 Cormorant Asset Management allocated the biggest weight to NextCure, Inc. (NASDAQ:NXTC), around 1.66% of its 13F portfolio. OrbiMed Advisors is also relatively very bullish on the stock, earmarking 1.59 percent of its 13F equity portfolio to NXTC.
Due to the fact that NextCure, Inc. (NASDAQ:NXTC) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that decided to sell off their full holdings by the end of the third quarter. Interestingly, Nathan Fischel’s DAFNA Capital Management sold off the largest position of the “upper crust” of funds watched by Insider Monkey, comprising about $1.4 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $0.5 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to NextCure, Inc. (NASDAQ:NXTC). These stocks are Astec Industries, Inc. (NASDAQ:ASTE), Emerald Expositions Events, Inc. (NYSE:EEX), United Financial Bancorp, Inc. (NASDAQ:UBNK), and Axsome Therapeutics, Inc. (NASDAQ:AXSM). This group of stocks’ market valuations match NXTC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ASTE | 13 | 83531 | 2 |
| EEX | 14 | 12181 | 7 |
| UBNK | 14 | 86797 | 5 |
| AXSM | 15 | 76029 | -1 |
| Average | 14 | 64635 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $189 million in NXTC’s case. Axsome Therapeutics, Inc. (NASDAQ:AXSM) is the most popular stock in this table. On the other hand Astec Industries, Inc. (NASDAQ:ASTE) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks NextCure, Inc. (NASDAQ:NXTC) is even less popular than ASTE. Hedge funds clearly dropped the ball on NXTC 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 NXTC as the stock returned 55% 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.
