Kezar Life Sciences, Inc. (KZR): Hedge Funds In Wait-and-See Mode

In this article we will take a look at whether hedge funds think Kezar Life Sciences, Inc. (NASDAQ:KZR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Hedge fund interest in Kezar Life Sciences, Inc. (NASDAQ:KZR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare KZR to other stocks including Digimarc Corp (NASDAQ:DMRC), Net 1 UEPS Technologies Inc (NASDAQ:UEPS), and Modine Manufacturing Company (NYSE:MOD) 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the latest hedge fund action surrounding Kezar Life Sciences, Inc. (NASDAQ:KZR).

What have hedge funds been doing with Kezar Life Sciences, Inc. (NASDAQ:KZR)?

At the end of the first quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KZR over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, Biotechnology Value Fund / BVF Inc held the most valuable stake in Kezar Life Sciences, Inc. (NASDAQ:KZR), which was worth $6.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $4 million worth of shares. Alyeska Investment Group, Millennium Management, and Prosight 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 Biotechnology Value Fund / BVF Inc allocated the biggest weight to Kezar Life Sciences, Inc. (NASDAQ:KZR), around 0.64% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, setting aside 0.2 percent of its 13F equity portfolio to KZR.

Due to the fact that Kezar Life Sciences, Inc. (NASDAQ:KZR) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedgies that decided to sell off their positions entirely by the end of the first quarter. At the top of the heap, Arsani William’s Logos Capital said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, totaling close to $0.5 million in stock. Alan Frazier’s fund, Frazier Healthcare Partners, also dumped its stock, about $0.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Kezar Life Sciences, Inc. (NASDAQ:KZR) but similarly valued. We will take a look at Digimarc Corp (NASDAQ:DMRC), Net 1 UEPS Technologies Inc (NASDAQ:UEPS), Modine Manufacturing Company (NYSE:MOD), and Saga Communications, Inc. (NYSE:SGA). This group of stocks’ market values are similar to KZR’s market value.

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As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $14 million in KZR’s case. Net 1 UEPS Technologies Inc (NASDAQ:UEPS) is the most popular stock in this table. On the other hand Saga Communications, Inc. (NYSE:SGA) is the least popular one with only 3 bullish hedge fund positions. Kezar Life Sciences, Inc. (NASDAQ:KZR) 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 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 12.2% in 2020 through June 17th and surpassed the market by 14.8 percentage points. Unfortunately KZR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KZR investors were disappointed as the stock returned 19% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.