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 Jounce Therapeutics, Inc. (NASDAQ:JNCE) and determine whether hedge funds had an edge regarding this stock.
Jounce Therapeutics, Inc. (NASDAQ:JNCE) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that JNCE isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 take a look at the key hedge fund action regarding Jounce Therapeutics, Inc. (NASDAQ:JNCE).
Hedge fund activity in Jounce Therapeutics, Inc. (NASDAQ:JNCE)
At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in JNCE 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 publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Jounce Therapeutics, Inc. (NASDAQ:JNCE). Renaissance Technologies has a $3.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which holds a $3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish include Paul Marshall and Ian Wace’s Marshall Wace LLP, Israel Englander’s Millennium Management and Peter Muller’s PDT Partners. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Jounce Therapeutics, Inc. (NASDAQ:JNCE), around 0.08% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to JNCE.
Since Jounce Therapeutics, Inc. (NASDAQ:JNCE) has faced a decline in interest from hedge fund managers, logic holds that there exists a select few funds who were dropping their entire stakes heading into Q4. Intriguingly, Steve Cohen’s Point72 Asset Management cut the biggest stake of all the hedgies tracked by Insider Monkey, totaling close to $1.7 million in stock. Bruce Kovner’s fund, Caxton Associates LP, also sold off its stock, about $0.5 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 6 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to Jounce Therapeutics, Inc. (NASDAQ:JNCE). These stocks are FedNat Holding Co (NASDAQ:FNHC), Fidus Investment Corp (NASDAQ:FDUS), Agile Therapeutics Inc (NASDAQ:AGRX), and Clearfield, Inc. (NASDAQ:CLFD). This group of stocks’ market valuations resemble JNCE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FNHC | 7 | 12007 | 1 |
| FDUS | 8 | 3314 | 2 |
| AGRX | 15 | 38935 | 3 |
| CLFD | 3 | 8200 | -1 |
| Average | 8.25 | 15614 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $9 million in JNCE’s case. Agile Therapeutics Inc (NASDAQ:AGRX) is the most popular stock in this table. On the other hand Clearfield, Inc. (NASDAQ:CLFD) is the least popular one with only 3 bullish hedge fund positions. Jounce Therapeutics, Inc. (NASDAQ:JNCE) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on JNCE as the stock returned 45.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
