Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Orchard Therapeutics plc (NASDAQ:ORTX) and see how the stock is affected by the recent hedge fund activity.
Orchard Therapeutics plc (NASDAQ:ORTX) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. ORTX was in 19 hedge funds’ portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with ORTX positions at the end of the previous quarter. Our calculations also showed that ORTX 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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Peter Kolchinsky of RA Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the new hedge fund action encompassing Orchard Therapeutics plc (NASDAQ:ORTX).
What have hedge funds been doing with Orchard Therapeutics plc (NASDAQ:ORTX)?
Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ORTX over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Orchard Therapeutics plc (NASDAQ:ORTX) was held by Deerfield Management, which reported holding $106 million worth of stock at the end of September. It was followed by RA Capital Management with a $62.1 million position. Other investors bullish on the company included Adage Capital Management, Driehaus Capital, and Vivo Capital. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to Orchard Therapeutics plc (NASDAQ:ORTX), around 4.32% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, earmarking 3.7 percent of its 13F equity portfolio to ORTX.
Because Orchard Therapeutics plc (NASDAQ:ORTX) has experienced falling interest from the smart money, it’s safe to say that there was a specific group of hedge funds who were dropping their full holdings last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at close to $3.2 million in stock. Warren Lammert’s fund, Granite Point Capital, also sold off its stock, about $0.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Orchard Therapeutics plc (NASDAQ:ORTX). We will take a look at Marten Transport, Ltd (NASDAQ:MRTN), Cision Ltd. (NYSE:CISN), Avaya Holdings Corp. (NYSE:AVYA), and Lakeland Financial Corporation (NASDAQ:LKFN). All of these stocks’ market caps are closest to ORTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRTN | 22 | 60918 | 4 |
| CISN | 24 | 84267 | 3 |
| AVYA | 40 | 259286 | -2 |
| LKFN | 10 | 20174 | -1 |
| Average | 24 | 106161 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $287 million in ORTX’s case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand Lakeland Financial Corporation (NASDAQ:LKFN) is the least popular one with only 10 bullish hedge fund positions. Orchard Therapeutics plc (NASDAQ:ORTX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 ORTX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ORTX investors were disappointed as the stock returned -4.1% 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.
