Were Hedge Funds Right About bluebird bio Inc (BLUE)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of bluebird bio Inc (NASDAQ:BLUE) based on that data and determine whether they were really smart about the stock.

bluebird bio Inc (NASDAQ:BLUE) was in 27 hedge funds’ portfolios at the end of March. BLUE shareholders have witnessed a decrease in hedge fund interest of late. There were 33 hedge funds in our database with BLUE holdings at the end of the previous quarter. Our calculations also showed that BLUE 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.

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.

Arthur B Cohen and Joseph Healey of Healthcor Management LP

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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind we’re going to analyze the recent hedge fund action regarding bluebird bio Inc (NASDAQ:BLUE).

How are hedge funds trading bluebird bio Inc (NASDAQ:BLUE)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BLUE over the last 18 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 bluebird bio Inc (NASDAQ:BLUE), with a stake worth $60 million reported as of the end of September. Trailing Adage Capital Management was Casdin Capital, which amassed a stake valued at $50.8 million. Citadel Investment Group, Armistice Capital, and Healthcor Management LP 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 Casdin Capital allocated the biggest weight to bluebird bio Inc (NASDAQ:BLUE), around 5.39% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, setting aside 1.84 percent of its 13F equity portfolio to BLUE.

Since bluebird bio Inc (NASDAQ:BLUE) has faced bearish sentiment from the smart money, we can see that there lies a certain “tier” of hedgies that decided to sell off their full holdings by the end of the first quarter. Interestingly, Arsani William’s Logos Capital dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $17.9 million in stock, and Kamran Moghtaderi’s Eversept Partners was right behind this move, as the fund dumped about $6.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 6 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as bluebird bio Inc (NASDAQ:BLUE) but similarly valued. These stocks are Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), Regal Beloit Corporation (NYSE:RBC), Freshpet Inc (NASDAQ:FRPT), and Taubman Centers, Inc. (NYSE:TCO). This group of stocks’ market valuations are similar to BLUE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $265 million. That figure was $287 million in BLUE’s case. Taubman Centers, Inc. (NYSE:TCO) is the most popular stock in this table. On the other hand Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) is the least popular one with only 18 bullish hedge fund positions. bluebird bio Inc (NASDAQ:BLUE) 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 BLUE as the stock returned 32.8% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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