Were Hedge Funds Right About Jounce Therapeutics, Inc. (JNCE)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Jounce Therapeutics, Inc. (NASDAQ:JNCE).

Is Jounce Therapeutics, Inc. (NASDAQ:JNCE) worth your attention right now? Hedge funds were becoming hopeful. The number of bullish hedge fund bets inched up by 5 in recent months. Jounce Therapeutics, Inc. (NASDAQ:JNCE) was in 17 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that JNCE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 12 hedge funds in our database with JNCE positions at the end of the fourth quarter.

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 115 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.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. With all of this in mind let’s take a look at the latest hedge fund action surrounding Jounce Therapeutics, Inc. (NASDAQ:JNCE).

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

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in JNCE over the last 23 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Partner Fund Management held the most valuable stake in Jounce Therapeutics, Inc. (NASDAQ:JNCE), which was worth $33.5 million at the end of the fourth quarter. On the second spot was Adage Capital Management which amassed $24.9 million worth of shares. Citadel Investment Group, OrbiMed Advisors, and CaaS 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 SilverArc Capital allocated the biggest weight to Jounce Therapeutics, Inc. (NASDAQ:JNCE), around 1.96% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, designating 1.02 percent of its 13F equity portfolio to JNCE.

Now, some big names have been driving this bullishness. Partner Fund Management, managed by Christopher James, assembled the most outsized position in Jounce Therapeutics, Inc. (NASDAQ:JNCE). Partner Fund Management had $33.5 million invested in the company at the end of the quarter. OrbiMed Advisors also made a $18.7 million investment in the stock during the quarter. The other funds with brand new JNCE positions are Frank Fu’s CaaS Capital, Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor), and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s now review hedge fund activity in other stocks similar to Jounce Therapeutics, Inc. (NASDAQ:JNCE). These stocks are Inozyme Pharma, Inc. (NASDAQ:INZY), Hemisphere Media Group Inc (NASDAQ:HMTV), Forte Biosciences, Inc. (NASDAQ:FBRX), Riley Exploration Permian, Inc. (NYSE:REPX), Gritstone bio, Inc. (NASDAQ:GRTS), One Liberty Properties, Inc. (NYSE:OLP), and FRP Holdings Inc (NASDAQ:FRPH). This group of stocks’ market valuations are closest to JNCE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.9 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $127 million in JNCE’s case. Forte Biosciences, Inc. (NASDAQ:FBRX) is the most popular stock in this table. On the other hand Riley Exploration Permian, Inc. (NYSE:REPX) is the least popular one with only 2 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 overall hedge fund sentiment score for JNCE is 86.9. 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 positive signal but 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately JNCE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on JNCE were disappointed as the stock returned -47.9% since the end of March (through 7/23) 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 many of these stocks already outperformed the market since 2019.

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