Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 Peltz’s recent General Electric 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 Exelixis, Inc. (NASDAQ:EXEL).
Is Exelixis, Inc. (NASDAQ:EXEL) a bargain? The smart money is taking a pessimistic view. The number of long hedge fund positions retreated by 7 in recent months. Our calculations also showed that EXEL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Samuel Isaly of OrbiMed Advisors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 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 new hedge fund action surrounding Exelixis, Inc. (NASDAQ:EXEL).
Hedge fund activity in Exelixis, Inc. (NASDAQ:EXEL)
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EXEL over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Exelixis, Inc. (NASDAQ:EXEL), which was worth $316.3 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $134 million worth of shares. Farallon Capital, OrbiMed Advisors, and Arrowstreet 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 Farallon Capital allocated the biggest weight to Exelixis, Inc. (NASDAQ:EXEL), around 1.06% of its 13F portfolio. OrbiMed Advisors is also relatively very bullish on the stock, designating 0.94 percent of its 13F equity portfolio to EXEL.
Judging by the fact that Exelixis, Inc. (NASDAQ:EXEL) has witnessed falling interest from hedge fund managers, it’s safe to say that there was a specific group of money managers who sold off their entire stakes in the third quarter. At the top of the heap, Panayotis Takis Sparaggis’s Alkeon Capital Management sold off the biggest position of the 750 funds monitored by Insider Monkey, totaling an estimated $35.3 million in stock. Jeffrey Jay and David Kroin’s fund, Great Point Partners, also dropped its stock, about $5.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Exelixis, Inc. (NASDAQ:EXEL). We will take a look at JBG SMITH Properties (NYSE:JBGS), Cimarex Energy Co (NYSE:XEC), The New York Times Company (NYSE:NYT), and Air Lease Corp (NYSE:AL). This group of stocks’ market valuations are similar to EXEL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JBGS | 19 | 269769 | -1 |
| XEC | 33 | 976357 | 1 |
| NYT | 35 | 1407752 | -3 |
| AL | 23 | 465385 | -1 |
| Average | 27.5 | 779816 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $780 million. That figure was $797 million in EXEL’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand JBG SMITH Properties (NYSE:JBGS) is the least popular one with only 19 bullish hedge fund positions. Exelixis, Inc. (NASDAQ:EXEL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on EXEL as the stock returned -10.5% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
