We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Milestone Pharmaceuticals Inc. (NASDAQ:MIST).
Milestone Pharmaceuticals Inc. (NASDAQ:MIST) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. MIST was in 6 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with MIST holdings at the end of the previous quarter. Our calculations also showed that MIST 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a look at the key hedge fund action encompassing Milestone Pharmaceuticals Inc. (NASDAQ:MIST).
What does smart money think about Milestone Pharmaceuticals Inc. (NASDAQ:MIST)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MIST over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Adage Capital Management was the largest shareholder of Milestone Pharmaceuticals Inc. (NASDAQ:MIST), with a stake worth $9.3 million reported as of the end of September. Trailing Adage Capital Management was Baker Bros. Advisors, which amassed a stake valued at $5 million. Ghost Tree Capital, Zimmer Partners, and Pentwater Capital Management 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 Ghost Tree Capital allocated the biggest weight to Milestone Pharmaceuticals Inc. (NASDAQ:MIST), around 1.11% of its 13F portfolio. Baker Bros. Advisors is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to MIST.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Farallon Capital. 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 none of the 750+ hedge funds tracked by Insider Monkey identified MIST as a viable investment and initiated a position in the stock.
Let’s go over hedge fund activity in other stocks similar to Milestone Pharmaceuticals Inc. (NASDAQ:MIST). We will take a look at Personalis, Inc. (NASDAQ:PSNL), Boston Omaha Corporation (NASDAQ:BOMN), BBX Capital Corporation (NYSE:BBX), and Avianca Holdings SA (NYSE:AVH). All of these stocks’ market caps match MIST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PSNL | 11 | 24511 | -6 |
| BOMN | 7 | 205119 | 2 |
| BBX | 14 | 29039 | -1 |
| AVH | 3 | 6791 | -1 |
| Average | 8.75 | 66365 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $23 million in MIST’s case. BBX Capital Corporation (NYSE:BBX) is the most popular stock in this table. On the other hand Avianca Holdings SA (NYSE:AVH) is the least popular one with only 3 bullish hedge fund positions. Milestone Pharmaceuticals Inc. (NASDAQ:MIST) 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 MIST wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MIST investors were disappointed as the stock returned -9.5% 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.