Where Do Hedge Funds Stand On Mesoblast Limited (MESO)?

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Mesoblast Limited (NASDAQ:MESO) based on that data.

Hedge fund interest in Mesoblast Limited (NASDAQ:MESO) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MESO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare MESO to other stocks including iRobot Corporation (NASDAQ:IRBT), Zymeworks Inc. (NYSE:ZYME), and Extended Stay America Inc (NASDAQ:STAY) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Crispin Odey of Odey Asset Management Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website. With all of this in mind we’re going to take a peek at the latest hedge fund action encompassing Mesoblast Limited (NASDAQ:MESO).

What does smart money think about Mesoblast Limited (NASDAQ:MESO)?

At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in MESO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

The largest stake in Mesoblast Limited (NASDAQ:MESO) was held by Odey Asset Management Group, which reported holding $1.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $1.8 million position. The only other hedge fund that is bullish on the company was Citadel Investment Group.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was ExodusPoint Capital).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mesoblast Limited (NASDAQ:MESO) but similarly valued. We will take a look at iRobot Corporation (NASDAQ:IRBT), Zymeworks Inc. (NYSE:ZYME), Extended Stay America Inc (NASDAQ:STAY), Ovintiv Inc. (NYSE:OVV), HMS Holdings Corp. (NASDAQ:HMSY), Hillenbrand, Inc. (NYSE:HI), and Wolverine World Wide, Inc. (NYSE:WWW). This group of stocks’ market values resemble MESO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $3 million in MESO’s case. Zymeworks Inc. (NYSE:ZYME) is the most popular stock in this table. On the other hand Hillenbrand, Inc. (NYSE:HI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Mesoblast Limited (NASDAQ:MESO) is even less popular than HI. Our overall hedge fund sentiment score for MESO is 27.5. 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. Hedge funds dodged a bullet by taking a bearish stance towards MESO. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd but managed to beat the market again by 15.4 percentage points. Unfortunately MESO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MESO investors were disappointed as the stock returned -15% since the end of the third quarter (through 11/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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