Were Hedge Funds Right About Dumping IGM Biosciences, Inc. (IGMS)?

Is IGM Biosciences, Inc. (NASDAQ:IGMS) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

IGM Biosciences, Inc. (NASDAQ:IGMS) was in 13 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 18. IGMS shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. There were 18 hedge funds in our database with IGMS positions at the end of the first quarter. Our calculations also showed that IGMS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 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.

Felix Baker of Baker Bros.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s analyze the new hedge fund action surrounding IGM Biosciences, Inc. (NASDAQ:IGMS).

Do Hedge Funds Think IGMS Is A Good Stock To Buy Now?

At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the first quarter of 2020. On the other hand, there were a total of 16 hedge funds with a bullish position in IGMS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Redmile Group held the most valuable stake in IGM Biosciences, Inc. (NASDAQ:IGMS), which was worth $285 million at the end of the second quarter. On the second spot was Baker Bros. Advisors which amassed $262.6 million worth of shares. Alkeon Capital Management, Woodline Partners, and Cormorant Asset 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 Redmile Group allocated the biggest weight to IGM Biosciences, Inc. (NASDAQ:IGMS), around 4.22% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, setting aside 1.16 percent of its 13F equity portfolio to IGMS.

Judging by the fact that IGM Biosciences, Inc. (NASDAQ:IGMS) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there exists a select few fund managers that decided to sell off their positions entirely by the end of the second quarter. Interestingly, Peter Kolchinsky’s RA Capital Management dumped the biggest stake of the 750 funds monitored by Insider Monkey, worth close to $75.4 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $3.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to IGM Biosciences, Inc. (NASDAQ:IGMS). We will take a look at Vista Outdoor Inc (NYSE:VSTO), Perficient, Inc. (NASDAQ:PRFT), NovaGold Resources Inc. (NYSE:NG), Minerals Technologies Inc (NYSE:MTX), Constellium SE (NYSE:CSTM), Allegheny Technologies Incorporated (NYSE:ATI), and Microvision, Inc. (NASDAQ:MVIS). All of these stocks’ market caps are similar to IGMS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $231 million. That figure was $740 million in IGMS’s case. Constellium SE (NYSE:CSTM) is the most popular stock in this table. On the other hand Minerals Technologies Inc (NYSE:MTX) is the least popular one with only 10 bullish hedge fund positions. IGM Biosciences, Inc. (NASDAQ:IGMS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IGMS is 30. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and surpassed the market again by 3.1 percentage points. Unfortunately IGMS wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); IGMS investors were disappointed as the stock returned -24.6% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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