At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not XBiotech Inc. (NASDAQ:XBIT) makes for a good investment right now.
Hedge fund interest in XBiotech Inc. (NASDAQ:XBIT) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that XBIT 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). At the end of this article we will also compare XBIT to other stocks including Independence Holding Company (NYSE:IHC), OneSpaWorld Holdings Limited (NASDAQ:OSW), and Green Plains Inc. (NASDAQ:GPRE) to get a better sense of its popularity.
Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
David Harding of Winton 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 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. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding XBiotech Inc. (NASDAQ:XBIT).
Hedge fund activity in XBiotech Inc. (NASDAQ:XBIT)
Heading into the fourth quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in XBIT a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in XBiotech Inc. (NASDAQ:XBIT). AQR Capital Management has a $1.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by David Harding of Winton Capital Management, with a $0.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to XBiotech Inc. (NASDAQ:XBIT), around 0.02% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, designating 0.0021 percent of its 13F equity portfolio to XBIT.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Caxton Associates LP. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as XBiotech Inc. (NASDAQ:XBIT) but similarly valued. We will take a look at Independence Holding Company (NYSE:IHC), OneSpaWorld Holdings Limited (NASDAQ:OSW), Green Plains Inc. (NASDAQ:GPRE), Genesis Energy, L.P. (NYSE:GEL), The York Water Company (NASDAQ:YORW), Adecoagro SA (NYSE:AGRO), and The Chefs Warehouse, Inc (NASDAQ:CHEF). This group of stocks’ market caps are similar to XBIT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IHC | 5 | 26115 | 0 |
| OSW | 10 | 67325 | -4 |
| GPRE | 17 | 156646 | -3 |
| GEL | 3 | 6208 | -1 |
| YORW | 9 | 16014 | 1 |
| AGRO | 10 | 141512 | -3 |
| CHEF | 19 | 86707 | 5 |
| Average | 10.4 | 71504 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $3 million in XBIT’s case. The Chefs Warehouse, Inc (NASDAQ:CHEF) is the most popular stock in this table. On the other hand Genesis Energy, L.P. (NYSE:GEL) is the least popular one with only 3 bullish hedge fund positions. XBiotech Inc. (NASDAQ:XBIT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XBIT is 23.1. 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 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 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 surpassed the market again by 16.1 percentage points. Unfortunately XBIT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); XBIT investors were disappointed as the stock returned 1.6% since the end of September (through 11/27) 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 most of these stocks already outperformed the market in 2020.
Follow Xbiotech Inc. (NASDAQ:XBIT)
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Disclosure: None. This article was originally published at Insider Monkey.
