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 Selecta Biosciences, Inc. (NASDAQ:SELB) and determine whether hedge funds had an edge regarding this stock.
Selecta Biosciences, Inc. (NASDAQ:SELB) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 21. SELB investors should be aware of a decrease in hedge fund interest of late. There were 21 hedge funds in our database with SELB holdings at the end of March. Our calculations also showed that SELB 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.
According to most traders, hedge funds are seen as unimportant, old investment vehicles of yesteryear. While there are over 8000 funds in operation at the moment, We hone in on the top tier of this group, about 850 funds. These hedge fund managers command the lion’s share of the hedge fund industry’s total capital, and by tailing their best picks, Insider Monkey has formulated many investment strategies that have historically outpaced the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Nathaniel August of Mangrove 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. Keeping this in mind we’re going to check out the fresh hedge fund action regarding Selecta Biosciences, Inc. (NASDAQ:SELB).
What have hedge funds been doing with Selecta Biosciences, Inc. (NASDAQ:SELB)?
Heading into the third quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the first quarter of 2020. On the other hand, there were a total of 8 hedge funds with a bullish position in SELB 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, Mark Lampert’s Biotechnology Value Fund / BVF Inc has the biggest position in Selecta Biosciences, Inc. (NASDAQ:SELB), worth close to $23.6 million, comprising 1.5% of its total 13F portfolio. Sitting at the No. 2 spot is Mangrove Partners, managed by Nathaniel August, which holds a $18.6 million position; the fund has 4.5% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Manfred Yu’s Acuta Capital Partners, Albert Cha and Frank Kung’s Vivo Capital and Samuel Isaly’s OrbiMed Advisors. In terms of the portfolio weights assigned to each position Mangrove Partners allocated the biggest weight to Selecta Biosciences, Inc. (NASDAQ:SELB), around 4.54% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, earmarking 1.94 percent of its 13F equity portfolio to SELB.
Due to the fact that Selecta Biosciences, Inc. (NASDAQ:SELB) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds who were dropping their entire stakes last quarter. Intriguingly, Oleg Nodelman’s EcoR1 Capital dumped the biggest position of the 750 funds watched by Insider Monkey, valued at close to $11.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $4.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Selecta Biosciences, Inc. (NASDAQ:SELB). We will take a look at Leju Holdings Ltd (NYSE:LEJU), Gritstone Oncology, Inc. (NASDAQ:GRTS), Civista Bancshares, Inc. (NASDAQ:CIVB), Centennial Resource Development, Inc. (NASDAQ:CDEV), Covenant Transportation Group, Inc. (NASDAQ:CVTI), SmartFinancial, Inc. (NASDAQ:SMBK), and Northwest Pipe Company (NASDAQ:NWPX). This group of stocks’ market caps match SELB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEJU | 3 | 2576 | 2 |
| GRTS | 12 | 51013 | 5 |
| CIVB | 12 | 13128 | 1 |
| CDEV | 20 | 39319 | 2 |
| CVTI | 10 | 14600 | 1 |
| SMBK | 7 | 20722 | 0 |
| NWPX | 13 | 39003 | 0 |
| Average | 11 | 25766 | 1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $86 million in SELB’s case. Centennial Resource Development, Inc. (NASDAQ:CDEV) is the most popular stock in this table. On the other hand Leju Holdings Ltd (NYSE:LEJU) is the least popular one with only 3 bullish hedge fund positions. Selecta Biosciences, Inc. (NASDAQ:SELB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SELB is 77.2. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 19.3 percentage points. Unfortunately SELB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SELB were disappointed as the stock returned -12.7% in Q3 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
